You can leverage the benefits of monthly dividend stocks to generate a recurring stream of passive income. This income can be used to pay your utility bills or offset any other expenses, making dividend stocks an ideal bet for retirees or income-seeking investors.
While several TSX stocks pay you a monthly dividend, just a handful of them are solid long-term bets. You need to hunt for stocks that offer a generous yield, are equipped with strong fundamentals, and generate cash flows across market cycles. Ideally, these payouts should increase each year, allowing long-term investors to increase dividends over time and benefit from the power of compounding.
Here is one such TSX dividend stock with an 8.2% yield that pays you cash every month.
Diversified Royalty stock has a dividend yield of 8.2%
A small-cap company, Diversified Royalty (TSX: DIV) currently offers investors a tasty dividend yield of 8.2%. It aims to acquire top-line royalties from multi-location businesses and franchises in North America, resulting in predictable and growing royalty streams. Diversified Royalty expects to increase cash flows per share and dividends by acquiring royalties that are highly accretive.
It owns trademarks including AIR Miles, Mr. Mikes, Mr. Lube, Stratus Building Solutions, Next Door, and Oxford Learning Centres. These seven royalty partners are in different industries, providing the company with diversification, which lowers overall risk.
In the first quarter (Q1) of 2023, Mr. Lube, which is DIV’s largest royalty partner, grew same-store sales by 17.6% year over year. The other royalty streams, including Mr. Mikes and Oxford, also grew same-store sales by 30.5% and 15.8%, respectively, in the March quarter. Its weighted average organic growth stood at 11.1% in Q1, showcasing the strength of a diversified portfolio.
Diversified Royalty entered the U.S. market in 2022
In late 2022, Diversified Royalty completed its first royalty transaction in the United States with Stratus Building Solutions, for a purchase price of $80.3 million. Stratus operates in the commercial, cleaning, and building maintenance verticals. It offers master franchises as well as turn-key janitorial unit franchises in the U.S. and Canada.
The global commercial cleaning industry has grown by 5.8% annually in the last seven years, and Diversified Royalty expects the acquisition to add $8 million in adjusted revenues each year, accounting for 14% of total sales.
Stratus has already achieved scale in the commercial cleaning industry and has delivered double-digit growth rates in the last five years. It was also ranked as one of the fastest-growing franchisors in 2020.
The acquisition of Stratus will allow DIV to gain traction in the franchise market south of the border, which is a much larger market compared to Canada.
What’s next for DIV stock and investors?
Due to its varied portfolio of royalty businesses, DIV pays investors a monthly dividend of $0.02 per share. These payouts have increased from $0.016 per share since April 2013.
DIV stock is priced at 7.7 times forward sales and 14.6 times forward earnings, which is quite reasonable given its high dividend yield.
Analysts remain bullish on DIV stock and expect shares to surge 33% in the next 12 months. After adjusting for dividends, total returns may be closer to 41%.
