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Monthly Dividend Stock In Focus: Boston Pizza Royalties Income Fund


Updated on October 9th, 2024 by Felix Martinez

Boston Pizza Royalties Income Fund (BPZZF) has two appealing investment characteristics:

#1: It is a high-yield stock based on its 7.8% dividend yield.
Related: List of 5%+ yielding stocks.

#2: It pays dividends monthly instead of quarterly.
Related: List of monthly dividend stocks

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Combining a high dividend yield and a monthly dividend makes Boston Pizza Royalties Income Fund appealing to individual investors who focus on income.

But there’s more to the company than just these factors. Keep reading this article to learn more about Boston Pizza Royalties Income Fund.

Business Overview

Boston Pizza Royalties Income Fund is an open-ended royalty trust whose sole purpose is to receive royalties from Boston Pizza restaurants and distribute them to unitholders in the form of monthly distributions. The fund generates revenue through indirect ownership of trademarks used by Boston Pizza International Inc. This ownership grants the trust a 4% royalty on the gross revenue generated by the Boston Pizza restaurants in the royalty pool.

Additionally, the trust enjoys a 1.5% distribution income based on its ownership stake, linked once more to the top-line sales of the royalty pool participants.

Since the fund’s inflows depend on each restaurant’s gross sales, it is not impacted by fluctuations in these restaurants’ or other intermediaries’ bottom lines. Essentially, the fund plays no part in the day-to-day running of each restaurant, which translates to two significant advantages.

First, the fund can act as an excellent inflation hedge, benefiting from increased revenue as Boston Pizza restaurants raise their prices over time, irrespective of any impact on each location’s profitability.

Second, the fund’s royalty revenues primarily affect its bottom line, with only minor administrative expenses. The fund does not make investments and has zero non-essential expenses that could affect its net income and, thus, unitholder distributions.

The fund reported its second-quarter results for 2024, highlighting modest growth in franchise sales and same-restaurant sales. Franchise sales for the quarter reached $236.8 million, a 1.3% increase compared to the same period in 2023. Year-to-date (YTD) sales amounted to $458.8 million, a slight 0.2% growth. Same-restaurant sales (SRS) increased by 1.7% for the period and 0.4% YTD, driven primarily by menu price increases. Cash flow from operating activities for the quarter was $9.6 million, a slight decline from the previous year.

Distributable cash decreased by 4.5% for the quarter and 1.5% YTD, reflecting declines in cash flow from operations and increased expenses. Despite these challenges, Boston Pizza maintained a payout ratio of 96.2% for the quarter and 96.5% YTD, up from 2023 due to lower distributable cash and higher distributions. The fund declared a cash distribution of $0.113 per unit for July 2024, which will be paid to unitholders on August 30, 2024.

Boston Pizza’s net income for the quarter was $7.5 million, down from $12.8 million in the second quarter of 2023. The decrease was attributed to a $6 million reduction in fair value gain, higher administrative and interest expenses, partially offset by lower income taxes. Year-to-date net income was $15.9 million, a decrease from $19.5 million in 2023. Overall, the company continues to navigate economic challenges while maintaining steady financial performance.

Growth Prospects

Due to the nature of its structure, Boston Pizza Royalty Income Fund’s growth prospects are solely determined by two factors. The first is the number of franchised restaurants in its royalty pool, while the other is the rate at which same-restaurant-sales grow.

Regarding the number of restaurants, it has been on a continuous decline since 2018, when the total number of Boston Pizza restaurants peaked at 396. The declining number of restaurants can be attributed to some locations being unprofitable for franchises, as well as the COVID-19 pandemic, which notably impacted all franchises during 2020 and 2021.

Source: Investor Relations

Regarding the second factor, Boston Pizza’s same-restaurant sales have rebounded significantly following their slump in the midst of the COVID-19 pandemic. A notable factor that could keep boosting same-restaurant sales moving forward is Boston Pizza’s inexpensive offerings, which are likely to experience increased demand as consumers opt for more affordable food during an uncertain or recessionary environment.

Source: Investor Relations

Overall, despite the declining number of Boston Pizza restaurants, the n0table increase in same-store sales resulted in near-record franchise sales in 2023, which, as mentioned earlier, came in at C$926 million.

Source: Investor Relations

Dividend Analysis

Over the years, Boston Pizza Royalty Income Fund has averaged a 100% payout ratio, essentially distributing the entirety of its net income to unitholders, which is in line with its purpose. In 2023, the fund’s payout ratio was 99.4%, paying out $0.92 in distributions per unit out of the $1.07 in distributable cash per unit.

Investors should not expect distribution increases or “cuts” but expect each year’s total distributions per unit to vary based on the underlying sales of Boston Pizza franchisees.

Barring unforeseen events like the COVID-19 pandemic, investors can generally expect a stable distribution level year-over-year. This is because Boston Pizza restaurants tend to generate steady sales annually, and the fund does not incur any non-essential expenses that could impact net income and ultimately affect the level of payouts.

As you can see, annual gross sales per Boston Pizza location tend to be incredibly stable under normal circumstances. The notable decline in 2020 and 2021 was due to severe lockdowns, which are extreme events. Yet, sales quickly normalized once lockdowns ended.

Source: Investor Relations

Also, management attempts to distribute available funds equally each quarter to ensure consistent monthly payouts.

The current monthly distribution of C$0.113 translates to an annualized rate of C$1.35, implying a yield of 7.8%.

Final Thoughts

Boston Pizza Royalty Income Fund is a unique investment vehicle. Its frictionless revenue model and purpose of distributing the entirety of its earnings, along with the highly attractive frequency of its monthly payouts, make it a highly enticing pick for income-oriented investors.

The 7.8% is not entirely reliable in the sense that extraordinary events could affect the revenues of Boston Royalty Franchisees, along with the fund’s cash flows. That said, excluding such severe events, investors should expect hefty distribution levels and, thus, very high yields, albeit minor variations between quarters.

Finally, we believe the trust could perform very well and continue to distribute substantially during a recession, as consumers are likely to favor its affordable menu. This was demonstrated during the Great Financial Crisis when the fund’s annual distribution levels remained rock-solid.

Overall, we believe that Boston Pizza Royalty Income Fund can be a fitting pick for income investors seeking substantial yields and a lack of correlation with the broader market’s performance.

Don’t miss the resources below for more monthly dividend stock investing research.

And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.

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