Both Alaris Royalty Corp (TSX:AD) and Diversified Royalty Corp (TSX:DIV) have exactly what dividend investors want. They pay generous current yields with the potential to grow.
Alaris is the larger company with 16 different royalty streams. It has agreements with companies like End of the Roll, Kimco, and Planet Fitness, just to name a few. Alaris takes preferred non-voting shares in exchange for an income stream that is between 10% and 15% annually, with built-in growth.
Alaris shares are down because one of its largest partners, KMH, isn’t paying royalties. But the company is in negotiations to get out of the agreement with some capital intact, and even without KMH it should be able to afford its 7% yield.
Growth for Alaris has been spectacular since its 2008 IPO, with revenue up 400% and net income up 200%. Dividends per share have increased every year since 2010.
Diversified Royalty is a much simpler company. It has three royalty streams with Mr. Lube, Sutton Real Estate, and Franworks, which operates mid-tier casual restaurants in Canada.
The company just released second quarter results that were up significantly compared to last year. Distributable cash came in at $0.057 per share in the quarter, which is barely enough to cover the company’s $0.0185 monthly dividend. That’s a yield of 9.2%.
Management expects cash flow to go up over time as the company signs more royalty deals. Legal expenses involving the former CEO should go down as well, adding to cash flow.
