Wednesday, February 22, 2017

Recent Buy

     As the fear of the possibility of a major correction or recession coming in the next year, some investors have sold out all of the holdings hoping to buy back in later at lower costs. At the same time, there  are also investors who are looking for opportunities to find good income producing stocks at reasonable prices. 
    The food business is a recession proof business to some degree.  Regardless if the economy is good or bad people have to eat. This eating can be food that is grown by themselves, food from a grocery store, a fast food  restaurant, and a regular restaurant. Nowadays, people are watching their money more closely by chosen fast food over the regular restaurants as it is cheaper. 

    Lots of the fast food restaurants still use meat products that have hormones in them.  There is one such restaurant that uses hormone free meat.  This company is A&W Food Services of Canada Inc.  Although the regular stock market investor can not hold shares in A&W Food Services directly, they can own units through their Royalty Fund.  The ticker symbol for the royalty fund is AW.UN

    How does the AW.UN make money? The fund makes money from royalties from sales at all their restaurants that are currently in the royalty pool.  

About the Fund

The Fund is a limited purpose trust established to invest in A&W Trade Marks Inc. (Trade Marks), which indirectly owns the A&W trade-marks used in the A&W quick service restaurant business in Canada. The trade-marks comprise some of the best-known brand names in the Canadian food service industry. Trade Marks licences these trade-marks to A&W Food Services of Canada Inc. in exchange for a royalty of 3 per cent of the sales of 838 A&W restaurants in Canada.
This structure makes the A&W Revenue Royalties Income Fund a "top-line" fund because income is based solely on the sales of A&W restaurants minus the Fund's and Trade Marks' minimal operating expenses, interest on Trade Marks' term debt and income taxes. The Fund is not subject to the variability of earnings or expenses associated with an operating business.   ( Source: )

    On February 14, A&W released it earnings for 2016. Some of the highlights of the earnings release are as follows :
  •  Same store sales growth up 3.4% for the year
  • Two years stacked same store sales growth  +11%
  • Royalty income by 7.3% from $31826000 in 2015 to $34135000 in 2016
  • Distributions increases twice during 2016
  • 861 restaurants now in the Royalty Pool as per press release Dec 19, 2016

     As per the table immediately above, A&W has the second most amount of restaurants.

    In the last 5 years, A&W Food Services of Canada has changed where their products come from. They have been the first in the industry in Canada to do this in these respective categories. These changes are as follows:
  • In 2013, A&W launched new beef which is raised without the use of hormones or steroids.
  • In September 2014, A&W introduced eggs from hens fed a fully vegetarian diet without animal by-products.
  • In October 2014, A&W began using chicken raised without the use of antibiotics and fed a grain-based, vegetarian diet without animal by-products.
  • In January 2015, Organic and Fair Trade coffee was introduced.
  • In February 2016, A&W introduced pork raised without the use of antibiotics. 


    Recently A&W released its earnings on Feb 14. The CEO of A&W was on BNN, which is a Canadian Business News Network  channel. The CEO stated the company is targeting millennials who want to become entrepreneurs  by becoming  franchisees over the next several years.

   The stock has seen some weakness during the last while, as investors are taking profits.  On February, I purchased 38 units of AW.UN for a total cost of $1487.08 including commissions. This purchase was in my TFSA

     AW.UN currently pays a annual distribution of $1.596 per unit.  Therefore, this purchase adds $60.65 to my annual dividend income. 

  I will update my investing tab spreadsheet in earlier March to reflect this transaction.

Disclosure:  Long AW.UN

I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.

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