Owning a fast food franchise is no picnic. An owner has to put up with staff shenanigans, whiny customers, local marketing, and a million other variables standing between them and a profit. And then there’s that persistent royalty fee, a percentage of all sales going back to head office in exchange for having the right to use a certain logo.
It might not be great to own a fast food joint, but the economics of owning the whole company are terrific. The franchiser gets paid first, no matter what happens. And since there are few other operating expenses, this translates into delicious profits for shareholders.
Boston Pizza Royalties Income Fund (TSX:BPF.UN) is the parent company of Boston Pizza, which has grown to become Canada’s largest fast casual restaurant. Last year, 2015, saw its 350+ locations do more than $1 billion in sales.
Same-store sales growth, an important indication of health in the restaurant sector, has been fine thus far in 2016, increasing 2.1%. Overall sales are up 3.9% as the company opens new restaurants. These improvements are despite tough numbers from Alberta, one of the company’s most important operating areas.
One huge advantage Boston Pizza has over its peers is size. It has millions it can dedicate to marketing. A big push lately has been its online ordering system, which is a big advantage versus smaller restaurants.
Boston Pizza has a high payout ratio approaching 100%, but that’s by design. Investors can not only count on the dividend, but the company is likely to continue growing the payout annually by 3-5%.
