Investing in monthly dividend stocks allows investors to create a regular source of passive income. A predictable income stream may be ideal for retirees or income-seeking investors who can cover a portion of their expenses with such investments.
Typically, dividend-paying companies aim to return a portion of their cash flows to shareholders and retain the rest to lower balance sheet debt and reinvest in growth projects, driving future earnings higher. The best dividend stocks also help grow investor wealth via long-term capital gains.
The TSX provides you with access to several quality monthly dividend stocks. One such company is Diversified Royalty (TSX: DIV), which offers shareholders a tasty dividend yield of 9.6%.
Valued at $370 million by market cap, Diversified Royalty is a multi-royalty corporation engaged in the acquisition of royalties from its portfolio of businesses and franchisors in North America.
An asset-light model allows royalty companies to distribute most of their earnings as dividends, resulting in a higher dividend yield. So, let’s see if this high-dividend TSX stock should be part of your equity portfolio right now.
Diversified Royalty: A compelling monthly dividend stock
Diversified Royalty is focused on acquiring predictable and growing royalty streams from a diverse group of businesses. Its royalty partners are brands such as Mr. Lube, Sutton, AIR MILES, Mr. Mikes, Oxford Learning Centers, Stratus Building Solutions, and Nurse Next Door.
These businesses are part of different industries, which offers investors diversification. The company currently pays investors a monthly dividend of $0.02 per share, up from a dividend of $0.016 per share in November 2014. Diversified Royalty expects to increase cash flow per share by making accretive royalty purchases, supporting higher dividend payouts in the future.
How did Diversified Royalty perform in Q3 of 2023?
Diversified Royalty reported revenue of $13.6 million in the third quarter (Q3), an increase of 16.9% year over year. Its weighted average organic royalty growth in the quarter stood at 6.8% compared to 9.9% in the year-ago period.
Diversified Royalty ended Q3 with distributable cash of $9.1 million, up 14.8% year over year. This meant its payout ratio stood at 94.4%, up from 86.1% in the prior-year quarter. Diversified Royalty’s payout ratio has risen, despite an uptick in sales, which means it is wrestling with higher operating costs amid an inflationary environment.
However, the company also closed a royalty agreement with BarBurrito Restaurants in Canada, adding an eighth royalty stream to its portfolio. A widening base of cash-generating royalties should help Diversified Royalty maintain its payout in an uncertain macro environment.
What is the target price for DIV stock?
Analysts tracking DIV stock expect its sales to rise by 32% to $59.63 million and earnings to surge by 58% to $0.19 per share. So, priced at 13.5 times forward earnings, DIV stock is quite cheap, given its tasty dividend yield and earnings growth estimates.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Diversified Royalty | $2.57 | 4,000 | $0.0204 | $81.6 | Monthly |
If you want to earn close to $1,000 in annual dividend income, you need to buy 4,000 shares of the company worth $10,280. In addition to dividends, investors are positioned to benefit from share price appreciation, too, as DIV stock trades at a discount of 60% to consensus price target estimates.
