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The Globe and Mail

Boston Pizza Royalties Income Fund looks set to pull back

Hi Lou

Love your work.

I have a question on Boston Pizza and its dividend. The payout ratio is over 250 per cent, how long can they sustain the dividend? Is it a buy or a sell?

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Hey Bruce,

Boston Pizza Royalties Income Fund has enjoyed a sweet ride off the 2008 lows when it traded at $7.50 a unit. If you look back to the January, 2010 article written by Skot Kortie, who is a contributor to, he identified the units as having upside potential when they traded for $12.52. The 45.36 per cent capital gain plus distributions over the last two and a half years since Skot's call tells you something about the markets appetite for these units.

With regards to the payout ratio, when I examined the first-quarter 2011 report the ratio was stated as 98.3 per cent for the quarter, and 95.7 per cent for the fiscal year. That compared to 100 per cent for first quarter 2010 and 98.1 per cent for fiscal year 2010. Keep in mind that these are trust units, not shares, and when we evaluate the payout ratio the distributions are compared to distributable cash.

An analysis of the charts will help determine how best to proceed with these units.

The three-year chart illustrates the trading pattern of the units which has been a rise to a plateau followed by a pullback. BPF.UN has cycled through the pattern twice and it appears we have come to the beginning of another plateau.

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Also worth noting is the RSI moving out of an overbought condition and the MACD turning lower.

The six-month chart provides a close-up of the most recent trading and suggests that it might be time to books some profits ahead of the first-quarter 2012 results scheduled for release on May 9.

What you can also observe on this chart is that with the recent advance the units have gaped up way over the 50 and the 200-day moving averages. Typically we would want to see the units trading closer to these support levels. Finally the uptrend line that supported the move has been breached indicating that the prudent investor might want to move to the sidelines.

Make it a profitable day and happy capitalism!

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