December 10, 2018

PZA-U Pizza Pizza Royalty Income Fund

 

 

One of the industry hold overs from the old income fund model is the UPizza Pizza Royalty Income Fund (PZA).  Most of these income funds in a variety of sectors changed to a more traditional corporate structure when the tax rules regarding income trusts changed in January of 2011.  Pizza Pizza is a Canada-wide pizza and pasta chain that is based out of Ontario. It has been in operation since 1967 and calls itself “Canada’s 1 pizza company.”  It is focused on becoming more geographically diversified, and maintaining its status as a leader in innovation.

 

Pizza Pizza (PZA) runs under a franchisee business model where each location pays a certain percentage of profits into the royalty pool that then gets paid out to unitholders.  Pizza Pizza offers potential owners of franchises such advantages as: centralized warehouses to promote volume purchasing, specialized operator training at the Pizza Pizza training centre, centralized financing options, real estate assistance and lease renewal, and centralized payment of all operating expenses such as sales taxes, mortgages and rents.  This helps take a large burden off of the back of any independent restaurant operator.  Especially form a business management standpoint.  It also gives the franchisee instant brand name recognition, all for a reasonable royalty rate of 6%.

 

The Pizza Pizza (PZA) brand is just coming out of a rough patch.  In 2010 the fund paid out 106% of its income, thereby depleting cash reserves in order to maintain dividend levels.  In 2011 the royalty fund announced that same store sales growth was up 2.6% and total sales were up 2.7%, due to the fact that there were 695 locations in the Royalty Pool in 2011 compared to 671 in 2010.  “Overall, our market-leading brands performed well in a competitive industry and in an uncertain economy,” Paul Goddard, the CEO of Pizza Pizza Limited stated.  “Going into 2012, I see innovation and customer satisfaction as the keys to accelerating our growth and further separating our brands from the competition. We’ll also continue leveraging our modernized restaurant network and “Hot and Fresh” menu to grow market share.”  Management predicts that the number of restaurants in the UPizza Pizza Royalty Income Fund (PZA) will increase by 2% in 2012.

 

Shares of the fund recently close at their 52-week high amidst forecasts of brighter times ahead.  The current unit price is $9.42, and this is up from a 52-week low of $7.27.  For a food retail stock, Pizza Pizza offers surprizing stability and has a relatively large market capitalization  of around $205 million.  Their annual dividend of $0.70 rewards unitholders with dividend yield of 7.5%.  If you’re looking for exposure to the Canadian restaurant industry, the piazza giant probably isn’t a bad play.  There are obviously adamant about preserving their dividend, and the stock appears to be reasonably priced.  I tend to stay away from the ultra-competitive business, but if you want to invest in the sector Pizza Pizza (PZA) is worth a look.

 

 PZA-U Pizza Pizza Royalty Income Fund Dividend Stock Graph:

 

PZA

PZA-U Pizza Pizza Royalty Income Fund Dividend Metrics:

TickerNamePriceDividend YieldPayout RatioINDUSTRY_SUBGROUPDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
PZA-UPizza Pizza Royalty Income Fund9.267.57105.57Retail-Restaurants05.000564-8.215052
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