The restaurant business is tough. Competition is everywhere, staff turnover is ridiculous, and it seems everyone with a little talent in the kitchen is dreaming of opening their own place. It’s little wonder most restaurants end up failing.
The franchise business is far better. All the parent company has to do is lend its logo and expertise to the individual restaurant owner, and in exchange it gets a percentage of every sale.
Boston Pizza Royalties Income Fund (TSX:BPF.UN) is one of Canada’s largest restaurant stocks. The stock is structured so royalties paid by franchisees are paid out directly to investors. The corporation incurs the operating expenses.
This translates into succulent dividends. Boston Pizza certainly delivers; the current yield is 6%. Nearly every nickel in earnings is paid out to investors, but the company does maintain a small cash buffer. It also increased the dividend by 6.2% in 2016, marking the fifth increase since being forced to convert back to a corporation in 2011.
Same-store sales, which is perhaps the most important metric for this stock, continue to be solid. Revenue increased a modest 1.8%, buoyed somewhat by new locations.
There were 383 Boston Pizza locations across Canada at the end of 2016 which amassed nearly $1.1 billion in sales. Average sales per location was $2.92 million.
Boston Pizza is Canada’s largest fast-casual restaurant, and management continues to invest in the concept. The menu is constantly being tweaked, and the company spends millions each year on marketing funded by the franchisees. It’s not going anywhere.
