December 10, 2018

AW-U A&W Revenue Royalties Income Fund

 

 

A&W (AW) was Canada’s first fast-food burger chain in Canada.  It opened at its first location in Winnipeg in June 1956.  The company expanded at record rates and by 1966 it had over 200 drive-in locations.  It quickly became a brand name associated with the baby boomer generation in Canada.  In 1972 the burger chain was purchased wholly by Unilever Canada Limited.  Since this point A&W Canada has actually operated as a completely separate entity from its American cousin.  Since the 1980s, much of A&W’s (AW) expansion has been in shopping centres.  They are market leaders in this category with roughly 220 shopping mall locations.  By 1996 A&W had underwent some corporate changes, and management would now focus on a franchisee structure going forward.  Over the next couple of years, the company would sell over a hundred restaurants as it streamlined operations.  In 2002 the A&W Revenue Royalties Income Fund (AW) was created in order to take advantage of favourable tax policies in Canada.  The company charges a royalty of 3% of sales that get paid back into the fund.  With over 730 restaurants from coast-to-coast, those burger sales add up fast!  A&W has seen 90% growth in the last decade, serves nearly 100 million customers a year, and employs roughly 19,000 people.

 

A&W (AW) recently released their 2011 financial highlights.  Same store sales were up for the ninth straight year (fast food stocks remained relatively unaffected by the economic downturn).  Royalty income overall was up 2.3% over 2010, and total sales were close to $800 million.  Much of this growth was due to the opening of 15 new locations in 2011.  Paul Gollands, the President and CEO of A&W Food Services of Canada Inc. stated, “We are pleased to report that in 2011 A&W recorded its 9th consecutive year of same store sales growth, even though the fourth quarter saw a slight decrease in same store sales.  Since the launch of the Fund 10 years ago, we have consistently focussed on managing the Fund in a fiscally conservative fashion resulting in increased distributions for unitholders.  To that end we are also pleased that regular monthly distributions per unit were up 10% for the quarter and the year despite the imposition of the SIFT tax. With the foodservice industry continuing to face uncertain economic conditions and a weak foodservice market in British Columbia, we will be launching new tactical and strategic initiatives in 2012 to counter these conditions.  Finally, the opening of our 750th restaurant in January is an important milestone as we continue to pursue our strategy of rapid expansion across the country.”

 

It is important to note the continued profitability of the fund in 2011 even though tax advantages disappeared in January of that year.  Units of the fund recently closed at $21.79.  This is slightly off of the 52-week high of $22.36 and relative to a low of $18.16.  In terms of the food retail industry, A&W (AW) has a strong market capitalization of $246 million.  With a very reasonable Price-to-Earnings ratio of 10.23, and a dividend yield of 6.4%, the stock looks like a pretty stable dividend-payer going forward.

 

A&W (AW) Dividend Stock Graph:

TSE AW


A&W (AW) Dividend Metrics:

TickerNamePriceDividend YieldPayout RatioINDUSTRY_SUBGROUPDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
AW-UA&W Revenue Royalties Income Fund20.256.93102.38Retail-Restaurants03.669445-11.00543