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Holy smokes! This ASX share has a 5.2% fully franked dividend!

You’d have to be off your rocker to buy ASX pot stocks when Retail Food Group Limited (ASX: RFG) is offering a 5.2% fully franked dividend yield.

Who is Retail Food Group, dude?

Retail Food Group is a $935 million company and the name behind many of Australia’s popular fast casual dining brands, such as Donut King, Pizza Capers, Crust Pizza, Gloria Jeans and much more. It also owns an extensive coffee distribution business being taken globally.

Being the owner of a popular food franchise is a great business because it means others will pay you to sell your products. For example, a franchisee (read: the local store owner) will pay the brand owner a fee to use the logo and sell its products. Then, the franchisee will often pay a percentage of the sales. Domino’s Pizza Enterprises Ltd. (ASX: DMP) has used the model successfully for years.

The business model means that Retail Food Group is very profitable with an enviable dividend yield, currently, 5.2% fully franked. After we include the benefits of the full franking credits, it is a ‘gross’ dividend of over 7%.

Try getting that from the bank.

Risks

However, let’s not look at Retail Food Group with rose coloured glasses. It has more than its fair share of risks, too.

For example, it seems every franchise owner has been dragged through the mud lately — and for good reason. The corporate heads of franchises often absolve themselves from any of the risks and wrongdoings of their franchisees. While Retail Food Group appears to have a good record, 7/11 and others have been allegedly underpaying staff. More bad press could hurt Retail Food Group.

Food is also a tough business. I couldn’t tell you the last time I had a Gloria Jeans coffee, Crust Pizza or went into a Michel’s Patisserie. While my food and coffee preferences won’t break the bank, people are always eager to try a new thing or cut decaffeinated hot soy lattes with extra caramel from their budgets if they lose their job or suffer a pay cut.

Investors would be wise to remember that retail is intensely fickle before rushing out to buy Retail Food Group shares.

Foolish Takeaway

Retail Food Group has proven to be an exceptional business. However, every investment has risks, otherwise, it would be a ‘saving’. I’m not buying Retail Food Group shares today, but I have it on my watchlist.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia owns shares of Retail Food Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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