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Ben Reynolds
Ben Reynolds
Articles (735)  | Author's Website |

Alaris Royalty: The Optimal Canadian Dividend Stream

See why this little-known Canadian dividend stock has big appeal for income-oriented investors

July 12, 2018 | About:

Investors looking for high-yield dividend stocks should not limit themselves to the U.S. There are many high-quality dividend stocks with high yields in other countries. For example, income investors should consider Canadian monthly dividend stocks, several of which have high dividend yields.

Alaris Royalty Corp. (ALARF) has a number of qualities that might be appealing to income investors. First, it has a dividend yield of 10%. In addition, it pays dividends each month. Monthly dividends allow investors to compound their wealth faster than they would with quarterly or annual dividend payouts.

As such, Alaris Royalty could be an attractive dividend stock for income investors.

Business overview and growth prospects

Alaris Royalty operates in the financial services industry. It provides alternative financing solutions to “partners,” which are private companies that may not have access to traditional sources of capital. For example, Alaris provides equity capital and assists with other alternatives to raise capital through leverage, private equity or public offerings.

The company's partners use the investment for a variety of purposes, some of which might include recapitalizations, growth initiatives or acquisitions. In exchange for the investment, Alaris Royalty receives a percentage of its partners’ annual revenue.

The company has a strict investment process that it closely adheres to. It focuses on businesses that are profitable through all economic cycles, have high free cash flow, low risk of deteriorating assets, a strong management team and a healthy balance sheet.

2017 was a difficult year for Alaris Royalty. Revenue recorded from its investments declined 11% due to partner redemptions and non-payment or partial payment from three partners. This was partly offset by distributions from new partners as well as higher revenue from positive partnership renewals. Earnings before interest, taxes, depreciation and amortization declined 6% to $2.11 per share.

Fortunately, 2018 is off to a much better start. Alaris Royalty grew partnership revenue and EBITDA by 14% and 10%, respectively, in the first quarter. Growth was due to distributions from new partners, follow on investments and positive partnership resets. The company maintains an optimistic forecast for the remainder of this year. Guidance calls for 2018 revenue of $97.9 million, which would be a 10% increase from 2017.

Dividend analysis and expected returns

The bulk of Alaris Royalty’s future returns will likely come from the company’s high dividend payout. With a monthly dividend payment of $.135 per share, Alaris Royalty pays an annualized dividend of $1.62, which yields over 13% at the current share price.

One consideration for investors buying international stocks is withholding tax. Canada imposes a 15% dividend withholding tax. However, the withholding tax is waived for U.S. investors who hold the stock in a qualified retirement account, such as a 401(k) or IRA.

The dividend payout appears to be secure. Alaris Royalty had a dividend payout ratio of 87.6% in 2017. This was a fairly high payout ratio, but the company still fully covered its dividend, even in a challenging year. The dividend payout ratio improved to 65.8% in the first quarter of 2018, which indicates a sustainable payout.

Alaris Royalty stock currently trades for just 5.8 times 2017 EBITDA per share. This is a low valuation, which could have room for expansion. If the stock traded up to 7 times EBITDA, shareholders buying at the current price would generate returns of 3.8% from an expanding valuation. Even if EBITDA per share remains flat over the next five years, valuation changes and the 13% dividend yield could provide total returns of nearly 17% per year going forward.

With a very high dividend yield above 10%, a secure dividend and monthly payouts, Alaris Royalty is the optimal Canadian dividend stock.

Disclosure: I am not long any of the stocks mentioned in this article.

About the author:

Ben Reynolds
I run Sure Dividend, a website that finds high quality dividend stocks for long term investors using the 8 Rules of Dividend Investing.

Visit Ben Reynolds's Website

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