Want to Secure a +5% Yield? Get Alaris Royalty Corp. Today

Get a strong 5.6% yield paid in monthly cash dividends from Alaris Royalty Corp. (TSX:AD) today! Read on to learn more about the business.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn moresdf

Alaris Royalty Corp. (TSX:AD) aims to create a secure dividend stream for investors. How is it achieving that?

The business

Alaris partners with profitable, private businesses by offering capital to them in exchange for monthly cash distributions.

Alaris chooses these businesses carefully and partners with them for a long time. So, these businesses can focus on their long-term goals in creating value while keeping their equity ownership and operational control.

Alaris generates about 69% of revenue from U.S. partners, so it benefits from a stronger U.S. dollar.

Alaris uses equity offerings to fund accretive investments. So far this year, it has invested more than $83 million.

Partner selection

Alaris looks to partner with well-run businesses that tend to provide needed products or services and are profitable in different economic cycles.

Additionally, these businesses should show a track record of generating free cash flow. Moreover, these businesses typically have low debt levels and do not require excessive spending to maintain their current cash flows.

Secure dividend stream

Multiple factors help secure Alaris’s dividend stream to shareholders.

First, since Alaris owns preferred shares in these companies, it gets paid first before other equities.

Second, the partners pay Alaris a monthly distribution, and this distribution is updated every year based on the partner’s business performance. So, if the businesses do well, they will pay a higher revenue stream to Alaris.

Third, as of May Alaris’s revenue stream is diversified across 16 partners. In the long term, Alaris aims to earn less than 10% revenues from all of its partners.

Lastly, Alaris’s partners have historically been able to grow their revenues by 1-5% each year. The growing cash flows allowed Alaris to hike its dividend 10 times since April 2010.

Top three partners

Alaris’s top three partners contribute 38.4% of the firm’s total annual revenue.

Sequel, a healthcare company founded in 1999 that develops and operates programs for people with behavioural, emotional, or physical challenges contributes 15% of revenue.

DNT, an industrial company that provides civil construction services contributes 13.3% of revenue.

Federal Resources, an industrials company based in Maryland that provides mission critical products and solutions to defense, first responder, homeland security and maritime end users contributes 10.1% of revenue.

Conclusion

As of May Alaris’s payout ratio was 77% thanks partly to the strong U.S. dollar. So, there’s a margin of safety for its dividend.

Alaris trades at an inexpensive multiple of about 16.2. At $28.70 per share, the company offers a high yield of 5.6%. If it dips to the $26 level, it will be a great entry point.

It pays an eligible monthly dividend of 13.5 cents per share. This equates to an annual payout of $1.62 per share. An investment of $10,000 would generate an annual income of $564.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has no position in any stocks mentioned.

More on Dividend Stocks

growing plant shoots on stacked coins
Dividend Stocks

5 Dividend Stocks to Buy With Yields Upwards of 5%

These five companies all earn tonnes of cash flow, making them some of the best long-term dividend stocks you can…

Read more »

funds, money, nest egg
Dividend Stocks

TFSA Investors: 3 Stocks to Start Building an Influx of Passive Income

A TFSA is the ideal registered account for passive income, as it doesn't weigh down your tax bill, and any…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 of the Safest Dividend Stocks in Canada

Royal Bank of Canada stock is one of the safest TSX dividend stocks to buy. So is CT REIT and…

Read more »

Growing plant shoots on coins
Dividend Stocks

1 of the Top Canadian Growth Stocks to Buy in February 2023

Many top Canadian growth stocks represent strong underlying businesses, healthy financials, and organic growth opportunities.

Read more »

stock research, analyze data
Dividend Stocks

Wherever the Market Goes, I’m Buying These 3 TSX Stocks

Here are three TSX stocks that could outperform irrespective of the market direction.

Read more »

woman data analyze
Dividend Stocks

1 Oversold Dividend Stock (Yielding 6.5%) to Buy This Month

Here's why SmartCentres REIT (TSX:SRU.UN) is one top dividend stock that long-term investors should consider in this current market.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

Better TFSA Buy: Enbridge Stock or Bank of Nova Scotia

Enbridge and Bank of Nova Scotia offer high yields for TFSA investors seeking passive income. Is one stock now undervalued?

Read more »

Golden crown on a red velvet background
Dividend Stocks

2 Top Stocks Just Became Canadian Dividend Aristocrats

These two top Canadian Dividend Aristocrats stocks are reliable companies with impressive long-term growth potential.

Read more »