Printed on April seventh, 2023 by Felix Martinez

Pizza Pizza Royalty Corp. (PZRIF) has two interesting funding traits:

#1: It’s a high-yield inventory based mostly on its 6.3% dividend yield.
Associated: Checklist of 5%+ yielding shares.
#2: It pays dividends month-to-month as an alternative of quarterly.
Associated: Checklist of month-to-month dividend shares

You possibly can obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter, like dividend yield and payout ratio) by clicking on the hyperlink under:

 

The mixture of a excessive dividend yield and a month-to-month dividend render Pizza Pizza Royalty Corp. interesting to income-oriented buyers. As well as, the corporate has a sturdy enterprise mannequin, with most of its revenues recurring. On this article, we’ll focus on the prospects of Pizza Pizza Royalty Corp.

Desk of Contents

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Enterprise Overview

Pizza Pizza Royalty Corp is a Canadian firm that operates within the restaurant trade, primarily by way of its two manufacturers, Pizza Pizza and Pizza 73. Pizza Pizza Royalty Corp is a singular entity within the Canadian inventory market, because it operates as a royalty-based revenue belief construction.

Pizza Pizza, based in 1967, is a well known and established pizza chain in Canada, with a robust presence in Ontario, the place it originated. Pizza 73, based in 1985, is a pizza supply and takeout model specializing in Western Canada, notably Alberta and British Columbia.

As a royalty-based revenue belief, Pizza Pizza Royalty Corp doesn’t function the eating places instantly, however as an alternative earns royalties from franchisees who function Pizza Pizza and Pizza 73 areas. The corporate’s income is primarily generated from royalty funds based mostly on a proportion of franchisee gross sales. This distinctive enterprise mannequin permits Pizza Pizza Royalty Corp to generate income with out instantly bearing the prices and dangers related to working eating places, corresponding to labor, hire, and meals prices.

Supply: Investor Presentation

Pizza Pizza Royalty Corp’s income and profitability are instantly tied to the efficiency of its franchisees. The corporate’s monetary success will depend on components corresponding to franchisee gross sales, the variety of eating places in operation, and total client demand for pizza and fast-food choices.

One of many notable options of Pizza Pizza Royalty Corp is its historical past of paying month-to-month dividends to its shareholders, which has made it a sexy funding for income-seeking buyers. Nonetheless, it’s necessary to notice that dividend funds usually are not assured and might be topic to alter based mostly on numerous components, together with the corporate’s monetary efficiency and administration selections.

Development Prospects

On March seventh, 2023, the corporate reported the fourth quarter and financial 12 months outcomes for 2022. The corporate gross sales elevated by double-digits throughout the 12 months whereas it additionally opened a report 45 new eating places.

The corporate eating places managed by way of inflationary pressures from each commodity and labor will increase. The constructive momentum all through 2022 allowed for 3 dividend will increase as walk-in and pickup gross sales elevated considerably as pandemic restrictions have been relaxed or eliminated.

The corporate is happy to announce one other dividend improve surpassing its pre-Covid dividend price. The administration staff appears to proceed the gross sales momentum by leveraging its advertising and marketing strengths whereas that includes its high-quality menu choices. The introduced dividend improve was 3.6% in comparison with the final dividend price.

For the quarter, same-store gross sales elevated 13.0% year-over-year (YOY). On the identical time, adjusted earnings per share elevated 11.1% YOY.

By way of growth, Pizza Pizza Royalty Corp has centered on rising its restaurant footprint primarily by way of franchising. The corporate has a historical past of selectively opening new areas and dealing with current franchisees to renovate and improve current eating places to fulfill altering client calls for and market tendencies.

Nonetheless, it’s value noting that the restaurant trade, like many different sectors, might be topic to challenges corresponding to altering client preferences, aggressive pressures, and financial fluctuations. Moreover, the franchise enterprise mannequin comes with dangers associated to the efficiency of particular person franchisees, potential authorized and regulatory adjustments, and different operational challenges.

 

Supply: Investor Presentation

Dividend & Valuation Evaluation

Pizza Pizza Royalty Corp. affords an exceptionally excessive dividend yield of 6.3%, 4 instances the 1.6% yield of the S&P 500. The inventory is thus an attention-grabbing candidate for income-oriented buyers. Nonetheless, U.S. buyers must be conscious that their dividend is affected by the prevailing change price between the Canadian greenback and the USD.

The corporate’s coverage is to distribute all obtainable money to maximise returns to shareholders over time after permitting for cheap reserves. Regardless of seasonal variants inherent to the restaurant trade, the corporate’s coverage is to make equal dividend funds to shareholders month-to-month to clean out revenue to shareholders.

The corporate’s working capital reserve is $7.5 million, a rise of $0.5 million within the quarter because of the 93.8% payout ratio. With the rise within the month-to-month dividend in February, June, November of 2022, and March 2023, the corporate believes that there’s ample money move to service the corporate’s obligations as they fall due whereas additionally rising the month-to-month dividend above its pre-COVID ranges.

The corporate has a really wholesome steadiness sheet. The corporate has an curiosity protection ratio of 27.1x, which is excellent, and a Debt/Fairness ratio of 0.2.

Concerning valuation, the corporate appears to be barely overvalued as a result of the present PE of 15.5x earnings is barely greater than its ten years common PE of 14.6x. Primarily based on 2023 earnings expectations of $0.67 per share, the corporate’s honest worth value is $9.73 per share. Presently, the corporate is buying and selling arms for $10.20 per share.

The present dividend yield of 6.3% can also be decrease than its five-year dividend yield common of seven.43%. Thus, based mostly on the PE ratio and dividend yield common, the corporate appears to be barely overvalued on the present value.

Supply: Investor Presentation

Remaining Ideas

In conclusion, Pizza Pizza Royalty Corp is a singular firm within the Canadian restaurant trade, working as a royalty-based revenue belief specializing in pizza manufacturers. Its enterprise mannequin depends on producing income from royalty funds from franchisees, and it has a historical past of paying rising month-to-month dividends to shareholders.

The corporate’s success is carefully tied to the efficiency of its franchisees and total client demand for pizza and fast-food choices. As with every funding, conducting thorough analysis, reviewing monetary statements, and consulting with a professional monetary skilled is crucial earlier than making funding selections associated to Pizza Pizza Royalty Corp or some other firm.

In case you are interested by discovering extra high-quality dividend development shares appropriate for long-term funding, the next Certain Dividend databases shall be helpful:

The foremost home inventory market indices are one other strong useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them month-to-month: