Franchisors can be a powerful way to grow your wealth in the stock market. Just look at the share prices of Retail Food Group Limited (ASX: RFG) and Domino's Pizza Enterprises Ltd. (ASX: DMP) over the last decade:
Not bad eh? Domino's of course far outstrips the smaller Retail Food Group, due primarily in my opinion to its rabid focus on growing same store sales and service quality at its primary brand.
Retail Food Group spreads its efforts over 6 or 7 franchises – Gloria Jean's, Donut King, Michel's Patisserie, Crust Pizza, Brumby's, and more – and growth in RFG's franchisees' sales has been much more modest. There's also no escaping that Retail Food Group appears tangibly cheaper than Domino's, with a price to earnings (P/E) tag of 14 times earnings, compared to Domino's outlandish 50-something.
It's no coincidence that RFG shareholders earn a 5.3% dividend at today's prices. Domino's shareholders? They get 1.3%.
Cheap, and a big dividend? There's no prizes for guessing my preference.
In my recent coverage of RFG's results I highlighted an issue with the seemingly high rate of franchisee failure at the company and suggested that investors be conscious of the price that they pay. The share price has since fallen some 16% since the results, and in my opinion is now getting back towards bargain territory. I consider RFG to be a good opportunity at around $5.
