Ushering in a new month for my Canadian dividend stock portfolio, I added a few stocks to my holdings today. This time, I decided to double down on one company instead of diversifying, as I already own 6 other dividend stocks in my portfolio as of August 2021. So, I decided to slow down on extreme diversification.

Today, I bought Pizza Pizza Royalty Corp. (PZA.TO) into my TFSA. I was able to add 175 shares of the company at the market price of $11.27 in the early trading hours of the day. This assures me a dividend yield of almost 6.4% per annum, which is about $10.5 per month or $126 per annum.

There are a few reasons behind why I picked this company and the number of shares I bought. We will get into details later on.

Pizza Pizza Royalty Corp., Company Profile

Pizza Pizza is a quite famous restaurant chain in Canada, operating through its two main brands; Pizza Pizza and Pizza 73. Although their specialty is pizza, they also offer other food and beverages such as burgers, sandwiches, salads, soft drinks, bottled juices, and energy drinks. The company was founded in 1967 and headquartered in Toronto, Canada. As of now, the company operates over 750 locations across Canada.

Pizza Pizza Royalty Corp., operates a franchising business, which means they sell their brands to third parties who wish to use their brand names, products, and recipes to open a foodservice outlet.

As with all other foodservice outlets, Pizza Pizza too was impacted by the restrictions of COVID-19. In 2020, they were hit hard, but in 2021, the company is showing signs of recovery.

Comparing Q2 2020 to Q2 2021;

• Royalty Pool sales increased 3.9%
• Same store sales increased 0.8%
• August 2021 monthly dividend increased 9%, to $0.06 per share from $0.055 previously.
• Adjusted earnings per share increased by 2.2%
• Restaurant network increased by five locations during the Quarter

Paul Goddard, CEO of Pizza Pizza Ltd., spoke with optimism about the challenges in 2021; “With the lifting of restrictions in Ontario late in the Quarter, we immediately experienced an increase in our walk-in sales and saw the reopening of a few, key non-traditional locations. This is positive momentum as we head into the back half of the year which have historically been our strongest sales quarters. As a result, our Board was pleased to announce a 9% increase in the shareholder dividend effective August 2021. Also, despite a particularly challenging economic backdrop in Alberta, we continue to maintain our market share.”

With the latest increase in dividend per share, the payout ratio of the company stands at 95%, which is very high. However, if the company sees no better ways to spend their money, attracting investors is the next best thing to do. Pizza Pizza Royalty Corp. prides itself on maximizing shareholder returns.

As of Q2 2021, Pizza Pizza has cash and cash equivalents of around $5mn which is just enough to cover the next dividend payment of around $4.1mn for Q3 2021.

As of today, SimplyWallSt. analyses the fair value of Pizza Pizza shares at CA$11.50, which is a little higher than the price I was able to secure today.

Why I Bought Pizza Pizza Royalty Corp.

In a previous article, I talked about the glory of creating dividend snowballs. In a nutshell, this is when the dividends received from one particular investment are sufficient to buy into the stocks of the same company. This way, even without any additional investments by you, the dividend portfolio grows exponentially.

With this investment, I try to create a Pizza Pizza dividend snowball.

I bought 175 shares of Pizza Pizza Royalty Corp. which will pay me $10.5 dividends per month. As the share price as of today is $11.27, my dividend check is almost good enough to buy an additional share of Pizza Pizza next month. I will add a few more shares to Pizza Pizza so that the monthly dividend payment is enough to buy an additional share of the company every month.

Next month, I will get a little higher dividend with the additional share I bought last month and this continues every month.

Every month I will receive a higher dividend than the last month and I will be able to add one more share of Pizza Pizza to the portfolio.

In 12 months, I would have added 12 additional shares of Pizza Pizza to my portfolio with their money! How cool is that!

This cannot be done with every dividend-paying company. The share price has to be low enough so that the dividend payout can actually afford to buy into itself. Pizza Pizza Royalty Corp. crossed all the checkmarks for a perfect dividend snowball.

Let us hear what you think about this investment and your questions in the comments below.

Disclosure: I’m not a financial advisor. Any information provided here is for entertainment purposes only. You must do you own research before you invest any money you have earned. Never invest money that you cannot afford to lose.