We Expect Pizza Pizza to Deliver
Late last year, we added shares of Pizza Pizza to client accounts wherever suitable.
Once the calendar rolled over into 2024, we planned to take profits on Restaurant Brands after watching the stock climb over 60% since adding it the year before. Both companies are structured as a royalty, which means the head office receives a percentage of sales while their franchisees operate the stores and incur their costs.
Pizza Pizza’s income payout to shareholders certainly caught our attention. Right now, the dividend is about 6.5%. We like that management has increased that dividend three times over the last year. Later in 2024, we expect the Bank of Canada to cut interest rates several times. As this happens, GIC rates will fall in tandem and investor appetite for dividend-paying stocks will grow due to the thirst for income.
There aren’t very many value propositions left out there, particularly for families. Pizza, however, is a rare exception. You can still buy a large pizza for $20 (as long as you’re buying from Pizza Pizza) and keep those expensive and unappreciative kids happy for a change.
Operations are running well. Over the last ten quarters, sales have climbed. Last quarter, same-store sales grew by 7% compared to the year before. Management commented on its conference call that much of the growth was driven by traffic (as opposed to price).
New store openings and renovations were hampered by Covid-19. However, things are now returning to normal. Eleven net new locations have recently opened, bringing the restaurant network to just over 660 total stores throughout Canada. The store count should grow by just under 3% this year, mostly in Ontario, British Columbia, and Quebec. In fact, they now have a few stores in Mexico too.
We expect this stock to serve our clients well. In addition to the 6.5% dividend yield, its value proposition following several years of high inflation guarantees that the demand for its product will remain high. It’s only a matter of time before other investors take notice.
-by Jeff Pollock
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