Investing in TSX dividend stocks, such as Diversified Royalty (TSX:DIV), allows Canadians to start a monthly passive income stream at a low cost. In addition to consistent dividend payouts, investors are poised to benefit from long-term capital gains.
Valued at a market cap of $620 million, Diversified Royalty stock has returned 230% to shareholders in the past decade after adjusting for dividend reinvestments. Despite these market-beating returns, DIV stock offers you a tasty dividend yield of 7.6% in November 2025.
Source: Getty Images
Is this TSX dividend stock still a good buy?
Diversified Royalty Corp operates a unique business model focused on acquiring top-line royalties from established multi-location businesses and franchisors across North America.
The company owns royalty streams from nine proven brands spanning different industries and geographies, including Mr. Lube, AIR MILES, Nurse Next Door, Oxford Learning, Sutton Group, Mr. Mikes, Stratus Building Solutions, BarBurrito, and, most recently, Cheba Hut.
DIV’s strategy centers on generating predictable, growing cash flows by purchasing royalties from businesses with long track records. Its partners have operated for anywhere from 16 to 60 years, providing stability and proven operational models. The company aims to increase cash flow per share through accretive royalty acquisitions and organic growth from existing royalty partners.
In June 2025, Diversified Royalty made a notable move by acquiring the worldwide trademark portfolio and intellectual property rights of Cheba Hut for US$36 million. This marks the company’s second U.S.-based royalty transaction and adds meaningful diversification to the portfolio.
Cheba Hut operates 77 fast-casual toasted sub sandwich restaurants across 19 states with system-wide sales reaching US$175 million. The brand posted an impressive 5% same-store sales growth in 2024 and forecasts system sales of over US$187 million for 2025.
The Cheba Hut royalty starts at US$4 million annually and includes built-in mechanisms for growth. The royalty automatically increases each year at the greater of 3.5% or the U.S. Consumer Price Index plus 1.5%, which offers inflation protection and organic growth without additional capital deployment.
Cheba Hut can also voluntarily increase the royalty payment in exchange for additional consideration from DIV at attractive multiples. The acquisition also added $51 million in tax pools, bringing total pools to $424 million, which can be used to reduce future cash taxes and support dividend sustainability.
Diversified Royalty funded the entire acquisition using its amended credit facility, cash on hand, and new debt, which showcases financial flexibility and a strong balance sheet.
Management increased the monthly dividend by 10%, from $0.25 to $0.275 per share, effective July 2025, reflecting confidence in its cash flow profile. It further raised its dividend to $0.295 per share effective December 2025.
A strong performance in Q3 2025
In Q3 2025, Diversified Royalty delivered weighted-average organic royalty growth of 5%, indicating portfolio resilience amid a challenging macro environment. It reported revenue of $18.3 million in Q3, an increase of 13.4% year over year, while adjusted revenue rose 12.6% to $19.6 million.
The company’s distributable cash increased 18.8% to $13.1 million in Q3. Given its quarterly dividend expense of around $11.6 million, the payout ratio is 88.5%, down from 94% last year.
The addition of Cheba Hut in June contributed its first full quarter of royalty income at $1.4 million, adding meaningful diversification to the U.S. market.
However, challenges remain: AIR MILES royalty declined 10.7% due to continued softness in the rewards program, and Sutton maintains its 20% royalty deferral through year-end 2025, with deferred amounts due in December 2027.
CEO Sean Morrison emphasized the portfolio’s ability to deliver strong organic growth even in a challenging environment, which supports dividend increases. The combination of double-digit growth from Mr. Lube, stable contributions from fixed royalty partners, built-in contractual escalators, and the new Cheba Hut royalty stream positions DIV for continued cash flow growth heading into 2026.
Analysts tracking DIV stock forecast its free cash flow to improve from $49.3 million in 2025 to $59.2 million. In this period, its dividend per share is forecast to increase from $0.27 to $0.31.
