How I bought a Burger King “franchise”

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).

Burger King1
The first Burger King in South Africa in 2013. Now there are over 60, and growing.

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.

I will soon also be a Dunkin Donuts “franchisee”.

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.


Why I regret being impatient

I believe one of the most important skills one has too learn in order to become a Dividend Tycoon is patience. The act of being patient can result in a higher level of initial income when acquiring a business, whereas impatience may lead to you paying a high price for a business and getting little initial income.

There is no need to rush, as becoming a Dividend Tycoon will in most cases take several years anyway, so why rush into buying a stock at any price. There are many great businesses such as Johnson & Johnson or Unilever, which are always tempting to buy, whatever the price, because you see their products in your house and think you want to own them, and you probably should. But there is a time and place for everything and sometimes it pays to sit on your hands. Sometimes cash is king.

I felt this acutely when the markets took a big dip recently, and even more during the 2008/2009 financial crisis. Wonderful companies being sold off cheaply, but I did not have any cash to participate in the feast. I could have turbo-charged my Dividend income and moved more quickly to becoming a Dividend Tycoon, so it was painful to watch these opportunities slip away. Charlie Munger has said that inactivity is the key, and waiting for a fat pitch, but then loading up.

I would be further ahead on the road to financial independence if I was more patient, but have resolved to not rush into buying stocks anymore, and too keep cash aside for those once in a while market crashes.

This site is not only about what one needs to do to become a Dividend Tycoon, but also about what one needs to not do, and being impatient is not good on your path to becoming a Dividend Tycoon.

Happy waiting!