A Sustainable 12% Dividend – In Fast Food

Taco Bell, Pizza Hut, KFC, you name it... North Americans are addicted to fast food.

And as long as Americans keep eating at these places, the 12% dividend checks I’ll share with you today will keep coming. Here’s the story...

The Priszm Canadian Income Fund earns the cash from nearly 500 fast-food outlets in Canada... and then distributes nearly all of that cash every month in the form of dividends.

Currently, the monthly dividend is 10.5 Canadian cents per share, per month. As I write, the current share price is C$10.65, which puts the annual dividend at just under 12%.

Now... whenever I see double-digit dividends, I’m immediately skeptical. A dividend that high is almost always a temporary thing... But in the case of Priszm, I believe this dividend is sustainable. Here’s one simple reason why...

Priszm just reported its first quarter numbers at the end of April. Typically, Canadians don’t eat fast food as much in the winter. (That shouldn’t be a surprise in the cold.) So the first quarter usually only makes up 7% to 10% of a full year’s distributable cash.

For the first quarter of 2006, the Priszm Canadian Income Fund reported distributable cash of around 14 cents per share. Let’s be conservative and say the rest of 2006 doesn’t go so well... if that’s the case, then the first quarter might make up a full 10% of the year’s distributable cash. Then that would mean that Priszm would bring home $1.42 of cash this year.

Since Priszm currently pays out 10.5 cents a month, over the course of a year, Priszm will distribute $1.26.

Priszm is scheduled to pay $1.26 a share in dividends this year, and $1.42 in distributable cash looks very doable. Priszm can cover the huge dividend.

It hasn’t been all roses with Priszm lately... shares fell dramatically in late 2005 for a few reasons... fears of changes in the tax treatment of income trusts in Canada, fears of bird flu (most of Prism’s restaurants are KFCs) and other things all piled on at once. Now that the worst is over, Priszm’s uptrend appears to be in place:

Now, both the chart and the company’s earnings are telling us the worst may be behind them... and if you’re a U.S.-based investor, it gets better. This fund is in Canada... and earns Canadian dollars.

I’m not sure if you’re aware, but the Canadian dollar has absolutely soared versus the U.S. dollar in the past few years... it’s up from a low of 79 cents last May to 90 cents today.

Said another way, you’d have made an additional 14% in Canada over the last year on any investment you’d made there, simply due to the strengthening of the Canadian dollar.

With high dividends, in boring businesses denominated in the Canadian dollar, there’s a lot to like about Canadian income trusts.

Ones like Priszm (QSR-UN.TO on Yahoo) are definitely worth checking out.

Good investing,

Steve

P.S. If you’re a subscriber of mine, you already know about my two favorite Canadian income trusts, which I believe are safer and better opportunities than Priszm. If you’re not yet a True Wealth subscriber, you ought to consider coming on board...

P.P.S. My father’s firm first brought Priszm to my attention. They track safe high-yielding Canadian income trusts closely. If you’re looking for a broker that knows these well and can put together a diversified portfolio of high-yielding income funds, get in touch with Howard, Sam or my dad (Dave) at 877-539-1004 or [email protected]