Special Dividend Distribution from SIRThe Pool will pay a monthly dividend over 20 percent higher in December, at $0.115. Very good news from Sir Royalty: “The Special Distribution reflects the strong sales performance of the restaurants currently included in the Fund's Royalty Pool and it is being declared in order to more closely align the Fund's aggregate monthly distributions in 2017 with the Fund's projected taxable income for the year, while maintaining appropriate levels of working capital.”
Recall that the payout ratio had fallen in 2h/2017. In order to minimize corporate taxation, SIR needs to get that payout ratio closer to 100 percent.
I had reflected in an earlier post that SIR may increase the distribution in 2018, and I still believe that. Why? On January 1,2018, 3 Scaddabush restaurants will be added to the royalty pool, including the lucrative Toronto Front Street location (and Oakville and Vaughan). All three are in good locations and having visited all three, I know traffic isn’t an issue. Moreover, Jack’s is performing well on the back of a decent CDN economy and store renovations.
Not sure what Peter Fowler is thinking , but with the stable of restaurants performing well at Sir, this is usually a good time to pivot over to corporate finance and perhaps doing a deal to acquire additional restaurants. The Corp certainly has the banking relationships to make that happen. Sir Corp is also 0 percent franchised, allowing Fowler to maintain tight operational control and ensure brand and quality isn’t impacted. At some point, however, with more management depth and oversight, franchising of one or more of the brands may make sense. Unlike the struggling and overly saturated and close to 100 percent franchised Cara (Swiss Chalet, Harvey’s, Kelsey’s, Fiona McCools, East Side Mario’s, etc), Sir doesn’t have many restaurants, and could expand further into Southwestern Ontario, Maritimes (2 restaurants) and the West (only 1 restaurant).
With the Ken Fowler foundation selling +400k shares, the overhang has caused the share price to drift lower , once again approaching an 8 percent yield. It is unlikely that Sir will just dribble this out on the board, but rather approach a broker and negotiate a block trade. The timing of when this block goes up is uncertain, and foundation will want to receive that $0.115 dividend. It goes Ex-dividend in about a week, so down here is a good opportunity to pick up shares, because once the block goes up and overhang removes, the share price will drift higher IMO, given the business momentum and current yield...