Investing in asset-light royalty companies is a great strategy for those looking to begin a passive-income stream at a low cost. Typically, royalty companies generate a steady stream of income due to ownership stakes in other profitable ventures. Due to low operating costs, royalty companies can distribute the majority of their royalty income to shareholders via dividends. Here are three top Canadian royalty stocks with dividend yields of up to 9.1%.
Alaris Equity Partners stock
Valued at $726 million by market cap, Alaris Equity Partners (TSX: AD.UN) pays an annual dividend of $1.36 per share, indicating a forward yield of 8.5%. Alaris provides alternative financing to private companies in exchange for distributions, dividends, and interest with the objective of generating stable and predictable cash flows.
In May 2024, Alaris invested US$20 million in Cresa in exchange for an annual payout of US$2.8 million. Cresa is a commercial real estate advisory company representing tenants with 50 offices in North America. Moreover, Alaris is committed to funding two follow-up investments totalling US$25 million in Cresa in return for additional preferred equity.
Alaris also announced an additional investment of US$22 million in The Shipyard. To date, Alaris has invested US$70 million in The Shipyard and is expected to earn US$9.8 million in annual dividends.
These acquisitions should drive revenue, cash flow and dividends higher for Alaris. The TSX dividend stock ended the first quarter (Q1) of 2024 with an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $39.1 million, or $0.86 per share, while its payout ratio was quite reasonable at 66%.
Diversified Royalty stock
Valued at $451 million by market cap, Diversified Royalty (TSX: DIV) offers you a tasty dividend yield of 9.1%. Its weighted average organic royalty growth in Q1 stood at 6%, while revenue increased by 22.2% to $15.1 million. Diversified’s distributable cash stood at $9.6 million in the March quarter, indicating a payout ratio of 97.2%, which is quite high.
In Q1, the company closed its public offering for gross proceeds of $54 million, providing it with the liquidity to target accretive acquisitions and lower balance sheet debt.
Analysts remain bullish on the TSX dividend stock and expect it to gain 38% in the next 12 months.
Decisive Dividend stock
The final royalty stock on my list is Decisive Dividend (TSXV: DE). Valued at $143 million by market cap, Decisive Dividend offers you a yield of 7.5%. An acquisition-oriented company, Decisive Dividend is focused on opportunities in the manufacturing sector.
In the last two years, Decisive Dividend has completed eight acquisitions. The company emphasized it is building a strong and growing acquisition prospect pipeline. To date, Decisive Dividend has assembled a portfolio of profitable manufacturing businesses focused on achieving long-term organic growth.
In the last 24 months, Decisive Dividend has invested $3.8 million in capital expenditures to increase the manufacturing capabilities of its holding companies, which has resulted in higher cash flows. With a payout ratio of 66%, Decisive Dividend increased its dividend by 12.5% to $0.54 per share in Q1 of 2024.
In addition to its high dividend, Decisive Dividend stock trades at a 29% discount to consensus price target estimates.
