Franchise Group (FRG) is rated as a buy in our "Dividend Speculators" model portfolio. In addition, we are now recommending one of its preferred shares in our Preferred Stock portfolio, explains Harry Domash, income expert and editor of Dividend Detective.
Originally Liberty Tax Services, FRG began operating as the Franchise Group in November 2019 with the goal of accumulating a growing list of franchisable businesses with strong growth prospects.
The company has a strategy of converting company-owned stores to franchises. In keeping with this strategy, Franchise Group franchised 47 company-owned Buddy’s Home Furnishings stores to bebe stores (BEBE). bebe also agreed to open 20 new Buddy’s locations.
bebe stores paid Franchise Group $35 million to do the deal, but on the downside, the change cuts Franchise Group’s annual revenue by around $35 million (2%).
Franchise Group also agreed to acquire FFO Home, a furniture retailer with 31 stores in Arkansas, Indiana, Kentucky, Missouri and Oklahoma, subject to a process under Chapter 11 of the U.S. Bankruptcy Code.
Meanwhile, the company has hiked its quarterly dividend by 50% to $0.375 per share, bringing its dividend yield up to 5.6%.
In addition to recommending the common shares for speculative investors, we’re also adding Franchise Group 7.50% Series A Cumulative (FRGAP) to our Preferred Stock portfolio.
Although not credit-rated, the shares are cumulative meaning that Franchise Group remains on the hook for any missed dividends.
Recently trading at $25.50 per share, the market yield is 7.4% and the yield to its 9/18/25 call date is 7.0%. Dividends are subject to the 15%/20% maximum tax rates and are eligible for the dividends received deductions for corporate holders.