Diversified Royalty Corp T.DIV

Alternate Symbol(s): BEVFF | T.DIV.DB.A

Consumer Cyclical Auto & Truck Dealerships

Diversified Royalty Corp. is a multi-royalty company. The Company is engaged in the business of acquiring royalties from multi-location businesses and franchisors in North America. The Company owns Mr. Lube, Sutton, Mr. Mikes, Nurse Next Door, Oxford Learning Centres, Stratus Building Solutions and BarBurrito trademark. Mr. Lube is the quick lube service business in Canada, with locations across Canada. Mr. Mikes operates casual steakhouse restaurants primarily in western Canadian communities. Nurse Next Door is North America’s growing home care provider with locations across Canada and the United States as well as in Australia. Oxford Learning Centres is a franchised supplemental education service. Stratus Building Solutions is a commercial cleaning service franchise company providing janitorial, building cleaning, and office cleaning services primarily in the United States. BarBurrito is a quick-service Mexican restaurant chain.

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Diversified Royalty Corp > Refreshing honesty

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Comment by wheeloffortuneon Jun 03, 2021 3:01pm

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RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Refreshing honesty

Just to add, AT&T was once thought to be a solid high dividend paying blue chip stock for years. A couple weeks ago, they cut their dividend and acquired another company. Future dividends are not guaranteed if they paid it for years in the past.

Capharnaum wrote:
Let me start by saying that I am not currently a shareholder of DIV (I'm following as I may jump in at some point).

I do believe that the premise which is stock trades at a multiple of the dividend is flawed. It is possible for a stock that pays a stable payout ratio with stable no risk interest rates over a really long time that the stock price matches directly the yield on a multiple basis.

However, considering that the no risk interest rates changes, the value of the stable dividend payout from a royalty company should also change. The premium over the no risk interest rates should stay relatively constant over time. If the premium is 6%, then at a no risk rate of 2%, the share price multiple would be 12.5x yield. However, if the no risk rate goes down to 0%, then the share price multiple should change to 16.7x yield, keeping the same premium of 6%.

Considering that rates are at a low point (but expected to go up in the mid term), it is reasonable to think that the multiple on the share price would be higher than it was 5 years ago.

Also, I do believe that the payout ratio has changed over the years for DIV. I may be wrong because I'm going from memory, but I think 5 years ago, the payout ratio based on cashflow was over 100% (around 120%?). The latest payout ratio was around 100%. A payout ratio today of 100% compared to a payout ratio of 120% five years ago should affect the multiple applied to the share price (based on yield). After all, otherwise, the company could just raise the payout ratio artifically. So, if my memory serves me right, the yield of 8% at 120% payout ratio would be the equivalent of 6.7% at 100% payout ratio.

In all those calculations, the cash on hand also plays a role, which could explain why the yield is still 8%.

My personal opinion on DIV is that it is currently fairly valued based on its operating metrics. There is some upside based on some of their royalty streams improving and there is some downside based on higher anticipated no risk interest rates.