December 10, 2018

SRV-U SIR Royalty Income Fund

 

 

The SIR Royalty Income Fund (SRV) is basically a corporation that owns several restaurant banners across Canada.  Their most well-known brand is Jack Astor’s Bar and Grill (31 locations).  They also operate eight locations under that Canyon Creek Chop House brand, and four under the name of Alice Fazooli’s.  Finally, the fund owns the following restaurants in downtown Toronto: Far Niente, Loose Moose Tap & Grill, FOUR, and Petit Four.  The fund takes royalties from the revenues of each of these restaurant locations and redistributes the money monthly to unitholders.

 

The SIR Royalty Income Fund (SRV) had a great 2011 relative to a lean 2010.  Their net earnings for the year were $5.5 million, and this is an obvious improvement over the $15 million loss the company took in 2010.  Also of note is the fact that SIR has purchased four additional sites for five new restaurants set to open in the next couple of years.  Peter Fowler, the President and CEO of SIR Corporation stated, “Our positive results for the year reflect a modest increase in overall same store sales of 2.8% over 2010.  We completed renovations at a number of our Jack Astor’s restaurants in conjunction with our commitment to maximizing performance at our locations.  Overall, we are committed to appropriately managing costs while at the same time sustaining and growing restaurant sales.  We continue to monitor the factors affecting our industry including economic conditions and consumer confidence in an effort to deliver positive and reliable results for Unitholders.”  Management at SIR claims that in addition to buying into their new locations, they are committed to investing in their existing restaurants, “To ensure that it remains well positioned with modern and relevant concepts.”

 

I wouldn’t recommend such a small restaurant play for anyone looking for a stable dividend supplier.  The food service industry is so competitive that profit margins will always be kept minimal.  While Mr. Fowler is right in that current economic conditions are not conducive to great business in slightly upscale restaurants, I would argue that it rarely is.  I’m not sure I see what competitive advantage SIR (SRV) offers, and their lack of geographical diversity is concerning to me as well.  With such a small market capitalization (not quite $60 million), the stock could fluctuate quite a bit going forward.  We have seen this worry bear out over the past 52-week period as the stock has went from a low of $7.16, to a high of $11.25.  It is now trading close to those highs.  This has resulted in a Beta of 0.559.  All of that being said, if you don’t mind a little risk in your dividend portfolio, the current annual dividend of $1.00 does offer unitholders an enticing dividend yield of 9.10%.  I just simply believe that there are more stable and consistent places to park your capital.

 

SRV-U SIR Royalty Income Fund Dividend Stock Graph:

 

TSE SRV

SRV-U SIR Royalty Income Fund Dividend Metrics:

TickerNamePriceDividend YieldPayout RatioINDUSTRY_SUBGROUPDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
SRV-USIR Royalty Income Fund10.899.15100.13Retail-Restaurants01.362369-6.956518