A&W Revenue Royalties Income Fund (AW-UN-T) shares rose about 5 per cent on Wednesday after the company announced a special dividend alongside third-quarter results that showed a smaller drop in same-store sales amid the pandemic versus the previous quarter.
The Vancouver-based company’s units closed up $1.39 to $29.15 on the Toronto Stock Exchange. The units hit a 52-week low of $16.75 in March. The company currently has no analyst coverage.
Same-store sales dropped 12.7 per cent for the third quarter ended Sept. 6 as compared to the third quarter of 2019. Year-to-date same-store sales were down 16.5 per cent. Same-store sales plunged 31.6 per cent in the second quarter from the prior year.
Royalty income for the third quarter was $10.2-million based on gross sales in the royalty pool of $340.6-million, compared to royalty income of $11.1-million on gross sales of $370.4-million 376,000 for the third quarter of 2019.
The fund’s net income was $7.4-million down from $8.6-million a year earlier.
“The COVID-19 pandemic continued to adversely impact A&W restaurant operations across Canada, including the temporary closures of a number of restaurants,” the company said in a release on Wednesday.
“We continue to evolve our plans to mitigate the effects of the COVID-19 pandemic,” Susan Senecal, chief executive officer of A&W Food Services stated. “We recognize that there are more challenges to come before we turn the corner in our response to this pandemic.”
The company said it will pay a special cash distribution of 30 cents per unit payable on Oct. 30 to unitholders of record at close on Oct. 23. Monthly distributions to unit-holders that were suspended to preserve cash during the pandemic were reinstated in June and paid at 10 cents per unit as of July 31.
That compares to the dividend of 15.9 cents per unit before the suspension announced at the end of March.
Moez Mahrez, an investment analyst with 5i Research Inc., says A&W has a good yield (about 4.3 per cent) and has managed to grow its dividend consistently over the years.
“The resumption of the distribution is encouraging to see,” he said in an email to the Globe. “We view AW.UN as one of the faster-growing royalty names in the restaurant space.”
He says a competing name would be the much larger Restaurant Brands International Inc. (QSR-T), the parent company of Tim Hortons, Burger King and Popeyes.
While QSR “is taking on more of an aggressive growth strategy and may provide more on capital gains potential … we like AW.UN for the income stability and track record of growth, providing a good total return mix,” he said.
Mr. Mahrez isn’t expecting huge growth from the company, but calls it “a good recovery play in a post-pandemic world.”
“Be patient through the ups and downs,” he adds. “COVID risks remain, but we would view this as a good long-term play for investors looking for income.”
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.