A&W Revenue Royalties Income Fund AW.UN

The Facts (as of February 28, 2011)

Share price: $21.82. Book value per share: $8.95. Market cap: $181.5 million (small). Distribution: $0.117 per month or $1.40 per year. Current yield: 6.5%. P/E: 15.2. Debt/equity ratio: no long-term debt. Payout ratio has been around 100%.

The Story

A&W Root Beer. The Burger Family. Chubby Chicken – a powerful lineup of great food and beverages and established brands with nearly 700 restaurants in Canada. The fund owns and licenses the trademarks of A&W in return for royalty payments from A&W Food Services of Canada Inc. Royalty payments are used to provide regular distributions to Fund unitholders.

On Feb. 9, A&W Revenue Royalties Income Fund announced that a syndicate of underwriters will complete a bought deal offering of units at a purchase price of $23.35 per unit, which closes March 2.

Pros

The company has some very well known and well respected brands. There is no long-term debt, which should avoid operational shocks. The current price is below the price of the bought deal. A bought deal is a great vote of confidence in the quality of the investment. Management is apparently very capable.

Cons

The price doesn’t seem cheap at the present level, although the yield is still attractive. I am unclear how the taxation will affect the fund. It is unclear whether there is any room for growth.

Impression

This company seems like a good investment for someone looking for current income.  Earnings are quite predicatable and should continue to support the income. Don’t expect much capital growth, however.

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