I have stated a few times on this site, that in order to become a Dividend Tycoon, it helps immensely to think like a business owner. Trading stocks as pieces of paper may make you money in the short term and if an opportunity presents itself I still do this in order to generate income. However, the really big money, and the easier money in my opinion, comes from buying businesses, good businesses, and holding them for the long term. These businesses can eventually shower you with dividends. Think Coca-Cola, Unilever, Pepsico and Procter and Gamble.
I recently wrote an article for a South African publication about how I bought a Burger King “franchise”. I wish to share that article with you because it explains what i mean by thinking like a business owner. The company which has the license for Burger King, as well as interests in a casino and other gaming assets in South Africa, is called Grand Parade Investments, and has been a good investment for me. The point of my article though is not to get you to go out and buy stocks in this business, you need to do your own investigation on that, and you will need to decide whether you want exposure to a developing economy, but to help you to think of stocks as businesses rather than pieces of paper.
Please note that the article has very minor adjustments to cater for readers outside of South Africa.
I hope you enjoy the article:
How i bought a Burger King “franchise” in South Africa
If you could buy any franchise in South Africa, which one would it be? Listening to people one often hears that “KFC is a goldmine”, but you cant buy them anymore in SA. They also say McDonald’s would be good, but they do not have the R5m (US$340,000) plus to buy a franchise, if you can. Well in my view a Burger King franchise will in time be just as good as these. The only problem is that they are not for sale in SA, not yet anyway, and when they are you are probably looking at not less than R5m (US$340,000).
The solution, a share of Grand Parade Investments (GPI). GPI owns 91.1% of Burger King in SA, so as a stockholder you effectively are the master franchisor, you get a bit of the profit from each and every store (close to 60 at last count). GPI expects Burger King to be profitable by the 2016 year-end after making initial losses in the start up phase. Being a part owner of all the stores also diversifies your risk from owning one store.
Buying a stock of GPI also gives you a share of GrandWest casino and its LPM slots business. GrandWest casino will be the subject of another article, but lets just say for now the cash flows from these assets are busy expanding your Burger King empire as we speak, or about to come your way as a dividend.
Of course in the last few months it has been announced that GPI has the rights to Dunkin Donuts and Baskin-Robbins in SA, so as a GPI shareholder your empire is growing. GPI also has a 10% stake in restaurant group Spur, so whenever you tuck into a Spur burger or a Panarottis pizza, you are adding to GPI’s profit.
To me, investing in stocks should not be complicated, I do not want to study actuarial tables to try and understand the balance sheet of an insurance company, or guess how much platinum the Chinese will want in 2020 before investing in a mining share. It amazes me though that so many people will see the queues at Burger King, the popularity of Spur since 1967, and never think how they could get a piece of the action. You should do your own homework, but I believe that in GPI you are buying quality assets, in a business that is easy to understand, at a price that currently looks attractive. My passion is to make people understand that as a stockholder, you are the owner of these businesses.
So maybe this should be the year you finally start your own business, perhaps a few food franchises would not be a bad place to start?
*Not a recommendation to buy, stocks can be risky. More a way to think about stocks. I currently own shares in Grand Parade Investments.