Small-cap energy stocks can be a hidden gem in your investment portfolio. These often have significant growth potential that larger companies might not offer. The smaller companies are typically more agile, allowing them to quickly capitalize on new opportunities or shifts in the energy market.
While they come with higher risks, the reward can be substantial if you pick the right one, especially if they hit it big with a new discovery or technology. Plus, with the ongoing global focus on energy and innovation, small-cap energy stocks could be positioned for impressive gains as the sector evolves. And there’s one I’d watch in particular.
Diversified Royalty
Diversified Royalty (TSX:DIV) is an intriguing option for investors seeking a steady income stream with the potential for growth. This royalty stock operates in a unique niche by acquiring top-line royalties from a diverse portfolio of well-established businesses across Canada. By doing so, it earns a percentage of the revenue generated by these businesses, thereby ensuring a consistent cash flow regardless of their profitability. This approach reduces risk because Diversified Royalty isn’t reliant on any single company or industry, thus making it a resilient choice for those looking to add stability to their portfolio.
What makes Diversified Royalty particularly attractive is its commitment to paying out a reliable monthly dividend, which is a big plus for income-focused investors. The royalty stock’s strategy of targeting high-quality, established brands means it’s well-positioned to benefit from long-term growth in various sectors. Whether you’re a dividend enthusiast or just looking for a stock that adds a bit of balance to your holdings, Diversified Royalty offers a compelling mix of income and potential upside — all wrapped up in one convenient package.
A dividend powerhouse
Diversified Royalty is a strong investment option for those seeking a reliable income stream. The royalty stock has a unique business model that involves acquiring top-line royalties from a diverse range of established businesses. In the second quarter of 2024, DIV reported its strongest adjusted revenue quarter in its history. Thereby highlighting the company’s ability to grow even in challenging market conditions. This growth was driven by key royalty partners like Mr. Lube and BarBurrito, which continue to perform well and contribute positively to DIV’s bottom line.
What makes DIV particularly appealing is its commitment to paying out dividends, backed by a solid payout ratio and increasing distributable cash. The company’s payout ratio of 88.6% in the second quarter of 2024 reflects its focus on returning value to shareholders. All while maintaining financial stability. With a portfolio that spans various industries, DIV offers a balanced mix of income potential and growth opportunities.
Income ahead
Diversified Royalty now offers a forward annual dividend yield of 8.8% at the time of writing, an attractive return for income-focused investors. This strong dividend, combined with a consistent payout history, underscores the royalty stock’s commitment to rewarding its shareholders. Despite a high payout ratio of 117.06%, DIV’s diverse portfolio of royalty streams from various stable businesses helps ensure steady revenue, thereby making it a resilient option even in volatile market conditions.
Moreover, DIV’s solid financial metrics further enhance its appeal. The royalty stock boasts a profit margin of 51.17% and an operating margin of 89.42%, indicating efficient operations and a strong ability to generate profits. With a reasonable price-to-earnings ratio of 13.57, the stock appears to be fairly valued, offering growth potential at an attractive price. For investors looking for a blend of income stability and growth potential, DIV stock certainly looks valuable.
