Sir Royalty Income Fund SIRZF

A clear path to $Teens

[BlueJay2020]

Well, a 28% bump to the distribution is very nice indeed, and it's a double whammy because of the impact to the SP.

This was an early and significant call to boost the distribution.  They could have kept it at 7c and no-one would have batted an eyelid.  They could have increased it by a cent and we would all have been a little surprised but delighted.  They've gone for a 2 cent increase about 12 days earlier than they needed to make the call.

The cynics might say that this is simply either a) Lembit exercising his new authority to get cash back on his investment more quickly and/or b) Fowler taking the opportunity to get some much needed cashflow back into the business.  It might be that for once, the motivation has aligned for these two big fish.

I think this may be a factor, but I also think (much more importantly) that it's a massively positive sign of how business has been over the last few weeks since things opened up a bit more, and also a sign that they view incoming vaccine passports as a further positive, or at the very least not significantly negative.  (Don't forget there is also the wildcard of a possible favourable business interruption insurance claim).

Now I am not going to make any predictions as to if and when the distribution might go up from here, but as it stands we are now comfortably in double digit yield territory.  I said recently that the 9% yield can't last for very long - something has to give.  That's even truer now.   The yield will be too juicy for some income investors to resist, and given the illiquidity of the stock, a steady stream of retail investors nibbling here and there can have a very good impact on the SP.

A yield of even 8% would imply an SP of $13.50.  8% is increasingly looking like a very good risk/reward return with so many other stocks looking pretty expensive at the moment.