Finding a safe harbour in a choppy stock market can feel like discovering a hidden gem. For Canadian investors looking for a consistent income stream amidst all the economic waves, Diversified Royalty (TSX:DIV) has become known for its appealing monthly dividend payouts. It’s like getting a little paycheque every month just for holding the stock! So let’s look at why it might belong in your portfolio.
Digging into digits
So let’s dig into what DIV offers. DIV has an annual dividend yield of roughly 9.1% at writing. That means for every share you own, you can expect to receive about $0.25 in your account each year, or about $0.021 each month. But there’s more to consider rather than a high dividend yield.
Let’s talk about how DIV actually makes money to pay these dividends. The dividend stock has a pretty interesting business model. It acquires the rights to royalties from a diverse group of well-established, multi-location businesses and franchisors spread across North America. Think of it like owning a small slice of the revenue from a variety of familiar brands.
The portfolio includes some well-known names like Mr. Lube + Tires, AIR MILES, Sutton, Mr. Mikes, Oxford Learning Centres and even BarBurrito. This wide range of royalty partners helps to ensure that DIV has a pretty steady and reliable flow of income coming in. If one sector happens to have a bit of a slowdown, the others can help to balance things out.
How it adds up
Looking at the most recent earnings report for the fourth quarter of 2024, DIV announced a net income of $0.04 per share. Interestingly, this figure was right in line with what the analysts who follow the company were expecting. This consistency in earnings is a good sign because it supports the company’s ability to keep those regular dividend payments going out to shareholders like you and me.
Now, you might have noticed that the dividend stock’s payout ratio is sitting at around 130.8%, which is higher than what you might typically see with other types of companies. The payout ratio basically tells you what percentage of a company’s earnings they are giving back to shareholders in the form of dividends.
While a really high number can sometimes raise concerns about the sustainability of those dividends, it’s important to understand the nature of royalty corporations like DIV. The primary business model is often focused on collecting these royalty payments and then distributing a significant portion of that cash flow to their investors. Because the income tends to be relatively predictable and stable (thanks to those long-term royalty agreements), a higher payout ratio can be sustainable over the long term.
Bottom line
For investors focused on generating a regular income in an unpredictable market, DIV definitely looks like an appealing option. Those monthly dividend payments can provide a nice, predictable stream of cash flow that you can either reinvest to buy more shares or use as income. Plus, DIV’s income comes from such a diverse range of businesses across different sectors adding a layer of security to that income stream. Of course, as with any investment, it’s always wise to do your own thorough research, consider your own personal financial goals and how much risk you’re comfortable taking, and maybe even chat with a financial advisor before making any decisions. But if a consistent monthly income is high on your list, Diversified Royalty is certainly a dividend stock that deserves a closer look.
