How to Pay for Your Retirement With Canadian Income Trusts

With pension plans collapsing left and right... government bonds paying 5% max... and regular Social Security a mess, it’s not surprising that American retirees are looking for better ways to collect income from their investments.

I believe I’ve found a very good solution. It’s a group of investments that pay extraordinary dividends, year after year. I recently wrote a report about them for my paid subscribers, it’s called “How to Pay for Your Retirement with Canadian Income Trusts.”

If you bundle the five Canadian investments together in that report, you’ll receive 52 dividend checks over the next year—an average of one per week. You’ll begin receiving your checks almost immediately. What’s remarkable is that these companies pay out roughly 7% to 15% in dividends every year. So the returns are extraordinary for shareholders.

For example... BusinessWeekconducted its own study that showed how Canadian Income Trusts paid 220% returns on average over the previous five years (as of March 2005). Ordinary stocks, meanwhile, DROPPED 24% during the same period. I thought I’d use today’s DailyWealth to share one of these five with you... the A&W Revenue Royalties Income Fund. (On Yahoo!, the symbol is AW-UN.TO).

In short, every time one of 650 A&W restaurants in North America sells a hamburger, soda, or french-fry, you get 3% of the gross sales. Business has been good... A&W just raised its monthly dividend payment... for the third time this year!

Readers of my publication Sjuggerud Confidential bought the A&W Canadian Income Fund over a year ago, and between the big dividend checks and the price of the stock going up, my subscribers are up over 30% -- in what I believe is a very safe investment.

Roy Allen and Frank Wright started A&W Root Beer in 1922. You may remember growing up with the little A&W Root Beer burger joints when you were a kid. While we don’t see many of ‘em in the States, A&W restaurants are big business in Canada now...

A&W opened its first restaurant in Canada in 1956. It was Canada’s first “chain” restaurant. By 1966, A&W had over 200 drive-in restaurants in Canada. Today, A&W restaurants are the 2nd largest burger chain in Canada, behind McDonalds. A&W has 630+ restaurants across the country.

Almost all of these restaurants are owned and run by franchisees... hardworking Canadians. The franchisees need the A&W name... When the customer sees that name, they expect the best fast-food burger in Canada, as well as a certain quality of service.

Because of the name, the franchisees are more than willing to pay their royalties to A&W. After all, how successful would their little hamburger business be without the name? It might be a success, but they couldn’t know – it would be a big risk.

The royalties A&W collects are 3% of sales, per year. While the franchisee may see that as a small price to pay for the famous name, the owners of the A&W name – which should include you – love it.

Since A&W’s sales have grown every year for decades (with the exception of one year, 1991), the 3% of sales royalty has grown steadily as well. It’s important to understand that the royalty is based on a percentage of SALES, not on profits. So even if a franchisee struggles profit-wise in a year, the TOP-LINE royalty still must be paid.

Over the last 20 years, sales for A&W restaurants have increased at over 8% a year, with good stability (only one down year). For the breakdown of that 8%+, A&W has been adding roughly 4% more stores a year, and they’ve seen roughly 4% a year in sales growth per restaurant.

Right now, the A&W Revenue Royalties Income Fund is priced attractively... At current prices, the dividend yield works out to over 7% a year.

When I first wrote about it to my subscribers of Sjuggerud Confidential, the stock was trading at about C$12.50. Now it’s up to C$16. I told my readers that once A&W raised its dividend, I’d be willing to pay up to C$16 for it. A&W has raised its dividend, so it’s a buy up to C$16.

Remember, by buying this, you don’t own A&W restaurants or have the business risk. That is borne by the franchisees. All you own is the trademark to the name. And you are paid out 3% of all sales of A&W restaurants in Canada, no matter what.

The A&W Revenue Royalty Income Fund is an exceptional opportunity... In an extremely dangerous investment environment, we’re significantly insulated from stock market risk, bond market risk, real estate market risk, commodities risk, recession risk (as people need to eat cheap and fast), you name it, it’s pretty insulated.

The basic risks are 1) A&W’s name gets tarnished somehow, or 2) if people stop eating burgers. Any way you slice it, we simply get 3% of A&W’s sales per year.

Good investing,

Steve