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Monthly Dividend Stock In Focus: Pizza Pizza Royalty Corp.


Updated on Ocotber 17th, 2024 by Felix Martinez

Pizza Pizza Royalty Corp. (PZRIF) has two appealing investment characteristics:

#1: It is a high-yield stock based on its 6.9% dividend yield.
Related: List of 5%+ yielding stocks.
#2: It pays dividends monthly instead of quarterly.
Related: List of monthly dividend stocks

You can download our full Excel spreadsheet of all monthly dividend stocks (along with metrics that matter, like dividend yield and payout ratio) by clicking on the link below:

 

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The combination of a high dividend yield and a monthly dividend makes Pizza Pizza Royalty Corp. appealing to income-oriented investors. In addition, the company has a robust business model, with most of its revenues recurring. In this article, we will discuss Pizza Pizza Royalty Corp’s prospects.

Table of Contents

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Business Overview

Pizza Pizza Royalty Corp is a Canadian company that operates in the restaurant industry, primarily through its two brands, Pizza Pizza and Pizza 73. Pizza Pizza Royalty Corp is a unique entity in the Canadian stock market, as it operates as a royalty-based income trust structure.

Pizza Pizza, founded in 1967, is a well-known and established pizza chain in Canada, with a strong presence in Ontario, where it originated. Pizza 73, founded in 1985, is a pizza delivery and takeout brand focusing on Western Canada, particularly Alberta and British Columbia.

As a royalty-based income trust, Pizza Pizza Royalty Corp does not operate the restaurants directly but instead earns royalties from franchisees who operate Pizza Pizza and Pizza 73 locations. The company’s revenue is primarily generated from royalty payments based on a percentage of franchisee sales. This unique business model allows Pizza Pizza Royalty Corp to generate revenue without directly bearing the costs and risks associated with operating restaurants, such as labor, rent, and food costs.

Source: Investor Presentation

Pizza Pizza Royalty Corp’s revenue and profitability are directly tied to the performance of its franchisees. The company’s financial success depends on factors such as franchisee sales, the number of restaurants in operation, and overall consumer demand for pizza and fast-food offerings.

One of the notable features of Pizza Pizza Royalty Corp is its history of paying monthly dividends to its shareholders, which has made it an attractive investment for income-seeking investors. However, it’s important to note that dividend payments are not guaranteed and can be subject to change based on various factors, including the company’s financial performance and management decisions.

The company reported financial results for Q2 and the first half of 2024, showing a mixed performance. In Q2, same-store sales decreased by 3.9%, and royalty pool sales dropped 2%, while adjusted earnings per share (EPS) fell by 3.3%. Year-to-date, same-store sales fell by 1.3%, but royalty pool sales increased slightly by 1%. The company added five new restaurant locations in the second quarter, bringing the total increase for the year to ten. CEO Paul Goddard emphasized that despite economic challenges, Pizza Pizza remains well-positioned for growth through its value-oriented menu and expanding presence.

During the quarter, royalty pool system sales for Pizza Pizza decreased by 2.8% to $133.8 million, while Pizza 73 saw a sales increase of 3.3% to $21.5 million. For the six-month period, Pizza Pizza’s sales slightly increased by 0.3% to $262.1 million, and Pizza 73’s sales rose 5.7% to $42.1 million. Same-store sales growth, which reflects performance at existing locations, was affected by a drop in customer traffic due to economic conditions. However, an increase in customer check amounts from price adjustments partially offset these declines.

The company declared dividends of $0.2325 per share in Q2, reflecting a payout ratio of 109%, up from 95% in the prior year. For the six-month period, dividends totaled $0.465 per share with a payout ratio of 115%. Pizza Pizza Royalty Corp. maintains a working capital reserve of $6.8 million, although it has decreased due to the higher payout ratio and reduced royalty income. Looking ahead, the company plans to grow its restaurant network by 3-4% and continue renovating its existing locations.

Growth Prospects

The company reported financial results for Q2 and the first half of 2024, showing a mixed performance. In Q2, same-store sales decreased by 3.9%, and royalty pool sales dropped 2%, while adjusted earnings per share (EPS) fell by 3.3%. Year-to-date, same-store sales fell by 1.3%, but royalty pool sales increased slightly by 1%. The company added five new restaurant locations in the second quarter, bringing the total increase for the year to ten. CEO Paul Goddard emphasized that despite economic challenges, Pizza Pizza remains well-positioned for growth through its value-oriented menu and expanding presence.

During the quarter, royalty pool system sales for Pizza Pizza decreased by 2.8% to $133.8 million, while Pizza 73 saw a sales increase of 3.3% to $21.5 million. For the six-month period, Pizza Pizza’s sales slightly increased by 0.3% to $262.1 million, and Pizza 73’s sales rose 5.7% to $42.1 million. A drop in customer traffic due to economic conditions affected same-store sales growth, which reflects performance at existing locations. However, increased customer check amounts from price adjustments partially offset these declines.

The company declared dividends of $0.2325 per share in Q2, reflecting a payout ratio of 109%, up from 95% in the prior year. For the six-month period, dividends totaled $0.465 per share with a payout ratio of 115%. Pizza Pizza Royalty Corp. maintains a working capital reserve of $6.8 million, although it has decreased due to the higher payout ratio and reduced royalty income. Looking ahead, the company plans to grow its restaurant network by 3-4% and continue renovating its existing locations.

In terms of expansion, Pizza Pizza Royalty Corp has focused on growing its restaurant footprint primarily through franchising. The company has a history of selectively opening new locations and working with existing franchisees to renovate and upgrade existing restaurants to meet changing consumer demands and market trends.

However, it’s worth noting that the restaurant industry, like many other sectors, can be subject to challenges such as changing consumer preferences, competitive pressures, and economic fluctuations. Additionally, the franchise business model comes with risks related to the performance of individual franchisees, potential legal and regulatory changes, and other operational challenges.

 

Source: Investor Presentation

Dividend & Valuation Analysis

Pizza Pizza Royalty Corp. offers an exceptionally high dividend yield of 6.9%, five times the 1.3% yield of the S&P 500. The stock is thus an interesting candidate for income-oriented investors. However, U.S. investors should be aware that their dividend is affected by the prevailing exchange rate between the Canadian dollar and the USD.

The company’s policy is to distribute all available cash to maximize returns to shareholders over time after allowing for reasonable reserves. Despite seasonal variants inherent to the restaurant industry, the company’s policy is to make equal dividend payments to shareholders monthly to smooth out income to shareholders.

The company has a very healthy balance sheet. The company has an interest coverage ratio of 27.1x, which is outstanding, and a Debt/Equity ratio of 0.2.

Regarding valuation, the company looks slightly undervalued because its current PE of 13.4x earnings is slightly lower than its ten-year average PE of 14.6x. Based on 2024 earnings expectations of $0.71 per share, the company’s fair value price is $10.37 per share. Currently, the company is trading hands for $9.74 per share.

The current dividend yield of 6.3% is also lower than its five-year dividend yield average of 7.43%. Thus, based on the PE ratio and dividend yield average, the company looks to be slightly undervalued at the current price.

Source: Investor Presentation

Final Thoughts

In conclusion, Pizza Pizza Royalty Corp is a unique company in the Canadian restaurant industry. It operates as a royalty-based income trust focusing on pizza brands. Its business model relies on generating revenue from royalty payments from franchisees, and it has a history of paying increasing monthly dividends to shareholders.

The company’s success is closely tied to the performance of its franchisees and overall consumer demand for pizza and fast-food offerings. As with any investment, conducting thorough research, reviewing financial statements, and consulting with a qualified financial professional is essential before making investment decisions related to Pizza Pizza Royalty Corp or any other company.

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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