This 5.7% Dividend Stock Is My Top Choice for Immediate Income

A high-yield dividend stock becomes a top choice for immediate income when the yield comes from steady cash flow, not stress. You want a payout the business can cover through a normal year, a model that does not need huge spending to keep running, and a buffer for slower quarters. The best ones make it easy to understand how cash gets from customers to your pocket, as immediate income only feels good when it feels dependable.

PZA

Pizza Pizza Royalty (TSX:PZA) fits this mould as a royalty company, not the restaurant operator. It collects a royalty on system sales from the Pizza Pizza and Pizza 73 restaurant networks. That structure matters because it reduces direct exposure to store-level costs like labour and ingredients. Instead, the key driver becomes system sales across the franchise network, because higher system sales generally translate into higher royalty income and more cash available for distributions.

Over the last year, the story has been about defending demand in a tougher consumer environment. The dividend stock pointed to heightened competition across quick-service restaurants and the pressure that comes when households feel squeezed. In response, it leaned into practical levers like digital ordering, faster service, and menu moves designed to protect traffic and basket size.

The network also continued to expand, which supports system sales even when same-store sales are muted. In its third quarter of 2025 update, the royalty pool included 794 restaurants, and the dividend stock reported that the restaurant network increased by 11 net locations during the quarter.

Earnings support

Now to the earnings and cash engine. In the third quarter of 2025, royalty pool system sales increased 2% to $158.8 million. Same-store sales rose 0.1%. Fully diluted basic earnings per share (EPS) came in at $0.231, and adjusted EPS came in at $0.236. These are not explosive numbers, but show the model still generates earnings and cash flow even when the environment feels competitive and cautious.

Dividend coverage is the line investors should watch closest with PZA. For that same quarter, the dividend stock declared dividends of $5.7 million, or $0.2325 per share, and it reported a payout ratio of 111% for the quarter. That sounds tight because it is tight, but it’s also a reminder that this business can be seasonal and that short periods can look stretched even if the full-year picture feels more manageable. The dividend stock also uses a working capital reserve to help smooth distributions through softer periods, and it reported that reserve at $4 million at the quarter-end.

Looking ahead, the outlook rests on system sales growth plus financing discipline. If the brands can keep nudging sales higher through menu, marketing, and digital improvements, the royalty stream can hold up. The other moving piece is interest expense. The dividend stock extended its credit facility to April 2028 and put an interest rate swap in place, and it described its interest rate as 3.51%, including its credit spread at the time.

Foolish takeaway

On valuation, PZA behaves like an income vehicle. Investors tend to anchor on the monthly dividend and the stability of the payout rather than expecting rapid capital gains. The current monthly dividend is $0.0775 per share, or $0.93 annually. Today, it trades at 17.5 times earnings with a 5.67% dividend yield. That can bring in ample income, even with just $7,000.

COMPANYRECENT PRICENUMBER OF SHARESANNUAL DIVIDENDANNUAL TOTAL PAYOUTFREQUENCYTOTAL INVESTMENTPZA$16.41426$0.93$396.18Monthly$6,990.66

The trade-off is that the payout can look snug in weaker quarters, so you need to be comfortable with a distribution that relies on steady system sales and some smoothing. Competition stays intense, consumer demand can wobble, and payout ratios can run high at times. If you want a monthly cheque and you can accept that coverage can feel tight in softer stretches, it can fit. If you want a bigger margin of safety, you may prefer a lower-yield option with more cushion.

The post This 5.7% Dividend Stock Is My Top Choice for Immediate Income appeared first on The Motley Fool Canada.

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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.