Are you willing to take on a little more risk and uncertainty for the chance to get higher returns in the near term? If so, you might be interested in Dream Office Real Estate Investment Trst (TSX:D.UN) and Alaris Royalty Corp. (TSX:AD).

Both companies have pulled back from their recent highs. Dream Office has declined about 24% in the last year. Alaris Royalty has declined about 25% since June. The companies now offer enticingly high yields as a result.

Who needs income?

You can get high yields of almost 9.4% and 7.3% from Dream Office and Alaris Royalty, respectively. A $10,000 investment in Dream Office would generate an annualized income of almost $940. A $10,000 investment in Alaris Royalty would generate an income of almost $730 per year.

Both companies pay safe yields. Dream Office’s funds from operations payout ratio is expected to be 63% for the year. Alaris Royalty’s payout ratio is expected to be 77% based on the revenue it expects to earn for the year.

It’s great that the companies offer nice returns from their cash dividends, but what are the risks?

Risk and uncertainty

Dream Office’s business performance and share price have been dragged down by its real estate portfolio in Alberta, from which it generates 27% of its net operating income. Commodity prices have fallen and remain low, and the Albertan economy suffers as a result.

Alberta’s seasonally adjusted unemployment rate in July was 8.6%, which was 2.4% higher than it was a year ago. Comparatively, Canada’s unemployment rate was 6.9% last month, which was 0.1% higher than it was a year ago.

It’s uncertain where commodity prices will go next, so there is more uncertainty and higher risk in investing in Dream Office.

Alaris Royalty offers capital to businesses that wish to maintain the ownership in their companies. In exchange, Alaris Royalty receives monthly cash distributions from these partners.

Alaris Royalty continues to experience problems with one of its partners, who stopped paying regular distributions in November 2014.

However, thanks to the strong U.S. dollar against the Canadian dollar and due to the fact that it generates 69% of its revenue from the U.S., there’s a cushion in Alaris Royalty’s payout ratio. Then again, you can argue that if the loonie strengthens, there will be less margin of safety for Alaris Royalty’s dividend as its payout ratio will head higher.


Dream Office’s net asset value (NAV) per unit was $23.64 at the end of the second quarter, which indicates it’s discounted by roughly 32% at about $16 per unit.

If the situation in Alberta improves, Dream Office’s Albertan portfolio should also fare better. If Dream Office trades at about $23 again, close to its NAV, it implies a price appreciation of more than 40%. And don’t forget its 9.4% yield would add to returns.

Alaris Royalty’s dividend is sustainable based on the revenue streams it receives from its 15 partners (excluding the problematic one). If it solves this issue or a new stream comes on board, its shares will likely head higher. In fact, Thomson Reuters’s report indicates a mean price target (across 10 analysts) of $30 in the next 12 months. If that materializes, it’d be a total return of 40%.

Investors should view Dream Office and Alaris Royalty as opportunistic investments that could potentially deliver high returns in the next year to three years while they get a high yield.

However, they will probably be more volatile than the market as the companies face their problems head on. So, investors shouldn’t bet the farm on them, even if they like the companies for income or other reasons.

Stock buy alert hits astounding 96% success rate!

The hand-picked investing team inside Stock Advisor Canada recently issued a buy alert for one special type of "bread-and-butter" stock where The Motley Fool U.S. has banked profits on 23 out of 24 recommendations. Frankly, with an astounding 96% success rate that has delivered average returns of 260%, chances are this new pick could deliver life-changing returns as well. Because the team at Stock Advisor Canada fully embraces the same time-tested investing philosophies that have led to countless Motley Fool winners globally. So simply click here to unlock the full details behind this new recommendation and join Stock Advisor Canada.

*96% accuracy includes restaurant stock recommendations from Motley Fool U.S. services Stock Advisor, Rule Breakers, Hidden Gems, Income Investor and Inside Value since each services inception. Returns as of 5/27/16.


Let’s not beat around the bush – energy companies performed miserably in 2015. Yet, even though the carnage was widespread, not all energy-related businesses were equally affected.

We've identified an energy company we think offers one of the best growth opportunities around. While this company is largely tied to the production of natural gas, it doesn't actually produce the gas. Instead, it provides the equipment required to get natural gas from the ground to the end user. With diversified operations around the globe, we think it's a rare find in the industry.

We like it so much, we’ve named it as 1 Top Stock for 2016 and Beyond. To find out why, simply enter your email address below to claim your FREE copy of this brand new report, "1 Top Stock for 2016 and Beyond"!

Fool contributor Kay Ng owns shares of ALARIS ROYALTY CORP. and Dream Office Real Estate Investment Trst.