2016 wasn’t a great year for Alaris Royalty Corp (TSX:AD).
A number of the company’s royalty partners had issues. KMH hasn’t paid a distribution since 2014. Alaris expects to take a loss on its investment, but has entered into an agreement to sell the stake for $28 million.
Three more of its royalty partners -- Group SM, Kimco, and SCR -- deferred their 2016 distributions. This decreased total cash flow by just over $18 million, or around 18%. The company received just over $82 million in cash distributions in 2016.
This translates into approximately $57 million in cash from operations for the year, after paying operating expenses, or $1.57 per share. Annual dividends total $1.62 per share, a payout ratio of just over 103%. This is why many investors are worried about the future of the dividend.
But things are beginning to look up. The $28 million received from the sale of KMH units will certainly help, and if the three companies that deferred 2016 distributions pay in 2017 that’s an additional $0.30 per share in cash flow. Alaris also projects it’ll get another $0.04 per share from contractual increases in its other royalty investments.
The company also had $67.8 million in cash on its balance sheet as of September 30, or just under $2 per share. This could easily be used to cover a short-term dividend deficit.
Besides, Alaris has operated with a payout ratio above 90% for much of its history as a publicly traded company. It has raised the payout by an average of 14% a year for the last five years.
