Upgrade today. From Globe and Mail CIBC World Markets analyst John Zamparo thinks Diversified Royalty Corp.’s (DIV-T +2.32%increase) $80-million acquisition of a royalty stream from Stratus Building Solutions “adds diversity and exposure to a recession-resilient industry, while its structure provides some protection if inflation lingers”
“Importantly, the equity raise solidifies the balance sheet for future deals, which seem more likely now that DIV has a blueprint for U.S. businesses,” he said. “DIV’s shares have rebounded of late, but we believe upside still exists. In what could be difficult economic conditions, DIV’s royalty structure and the continued solid performance from Mr. Lube should limit downside. Furthermore, we find the distribution attractive (7.9-per-cent yield), and the monthly payout structure is a compelling feature for investors in an uncertain macro environment.”
With that view, Mr. Zamparo raised his recommendation to “outperformer” from “neutral” with a $3.50 target, up from $3.25. The average is $3.98.
“DIV offers investors a relatively stable business with a high-quality flagship asset, a moderate level of diversification, attractive monthly income and a responsible payout ratio (we estimate 93 per cent for 2023),” he said.