What happened: Investors have pushed stock prices higher for the Keg Royalties Income Fund (TSX:KEG.UN), A&W Revenue Royalties Income Fund (TSX:AW.UN) and for the Boston Pizza Royalties Income Fund (TSX:BPF.UN), when those companies either raised or reinstated monthly payouts to unitholders.
Why it matters: The phenomenon shows confidence in the part of those companies, despite a challenging time for the sector. It also shows that investors have a keen appetite for securities with high yields.
Investors are clearly chasing yield, at least when it comes to those interested in investing in three Metro Vancouver-based income funds.
The cost of distributions to unitholders comes directly out of the capital base of these companies, so payouts to investors should not make the companies more valuable.
Yet, hiking distributions in several cases has had that effect.
The Keg Royalties Income Fund’s unit price popped 7.8% in the two days following its October 13 announcement that it would increase monthly distributions to $0.05 per unit, from $0.035 per unit.
That remains far below the $0.0946-per-unit monthly distribution that The Keg paid out until February, 2020, before the COVID-19 pandemic took hold, but it is a sign that the company believes that it is capable of paying unitholders an increased sum each month despite continuing uncertainty in the restaurant sector.
“At this point, the outlook remains uncertain and unpredictable for The Keg’s sales levels going forward,” The Keg CEO David Aisenstat said in the October 13 news release.
“We have been relatively satisfied with our performance since restaurants have reopened starting in late May through to the beginning of July. Despite substantially limited capacity due to COVID-related mandates involving physical distancing and hours of operation, our guests have been very supportive of The Keg.”
That same confidence to raise monthly distributions may also be what appeals to investors in A&W Revenue Royalties Income Fund and the Boston Pizza Royalties Income Fund.
All three restaurant chains' unit prices were in free-fall earlier this year, as COVID-19 started spreading, and governments started putting in place restrictions.
Aisenstat told media at the time that he did not see delivery as an option because steaks do not travel well.
While The Keg chopped its monthly distributions by 63% starting in March, Boston Pizza axed its $0.102-per-unit distribution entirely starting in May.
On October 1, Boston Pizza announced that it would reinstate its monthly distributions at the much-reduced rate of $0.065 per unit, and its unit prices soared 43.2% in the next day’s trading.
The same phenomenon happened at A&W.
The burger chain axed its $0.159-per-unit distribution entirely starting in April.
A&W’s unit prices then popped 15.6% on July 8, the day after the company announced that it would reinstate a monthly distribution at $0.10 per unit.
These moves hint at corporate confidence but may also convey a demand for companies that provide high yields.
The annual yield for The Keg at the close of trading on October 15 was 7.1%, while the yield for A&W was about 4.1%, and the yield for Boston Pizza was about 9.2%.