Invest in Pizza: TSX Royalty Trust Offers 6.4% Monthly Dividends

Investors looking for a reliable source of income may want to consider the opportunity presented by Pizza Pizza Royalty (TSX:PZA), which currently offers a yield of **6.4%** through monthly dividends. This unique investment model allows individuals to benefit from a popular pizza chain without the complexities that come with owning a restaurant.

Understanding the Business Model

The investment revolves around two distinct entities. The first is **Pizza Pizza**, a well-known private restaurant chain operating hundreds of locations across Canada. This company faces various operational challenges, including staffing issues, food inflation, and the costs associated with marketing and franchise support. It is a traditional operating business with significant expenses.

The second entity is **Pizza Pizza Royalty**, a publicly traded trust that does not engage in the daily operations of the restaurants. Instead, it holds the rights to a percentage of the gross sales from all Pizza Pizza locations. This structure allows Pizza Pizza Royalty to avoid the costs associated with running restaurants, such as employee salaries and ingredient expenses. Consequently, this trust can maintain high margins and a straightforward financial structure, reducing operational risks compared to traditional restaurant ownership.

Investors gain exposure to the growth of the Pizza Pizza brand without the need for direct reinvestment in restaurant operations. As the operating company expands and increases its sales, the trust benefits directly from that growth.

Dividends and Payout Structure

Every time a sale is made at a Pizza Pizza location, a portion of that revenue flows to Pizza Pizza Royalty, which in turn distributes most of the collected cash to its investors. Currently, the trust pays **$0.0775** per share each month, amounting to **$0.93** annually, with payments occurring on the **15th of each month**.

Due to the nature of its business model, Pizza Pizza Royalty reports a payout ratio of approximately **97%**. This means that nearly all of the net income is available for distribution to investors, with only a small reserve held for seasonal fluctuations and administrative expenses. This high payout ratio ensures that most of the revenue collected from royalties reaches investors, who can choose to reinvest for compounding returns or withdraw for personal use.

Before investing, potential buyers should consider that while Pizza Pizza Royalty presents a solid dividend yield, it was not included among the top 15 stocks recommended by the **Motley Fool’s Stock Advisor Canada** team. These analysts have identified alternative stocks that they believe offer greater potential for significant returns in the coming years.

For instance, investors who put **$1,000** into **MercadoLibre** upon its recommendation in early 2014 would have seen that investment grow to over **$21,000** by now. The Motley Fool’s Stock Advisor Canada has reported an impressive average return of **95%**, significantly outperforming the **S&P/TSX Composite Index**, which stands at **72%**.

In summary, while Pizza Pizza Royalty offers an attractive monthly dividend yield, investors should weigh this against other potential opportunities in the market. The ongoing success of Pizza Pizza as a brand and the stability of the royalty trust model may be appealing, but due diligence is always recommended to ensure an informed investment decision.