The owner of some familiar consumer brands is paying an 8.2-percent dividend yield right now
The stock: For better or for worse, Vancouver’s mayor-elect Ken Sim is known as a wealthy businessman. Nurse Next Door, the home-care franchise network he co-founded with John DeHart in 2001, was mostly responsible. But did you know you too can invest in the Nurse Next Door brand, along with several other well-known West Coast names, by buying shares in Diversified Royalty Corp. (TSX:DIV)?
The drivers: We can’t promise you’re going to make out like Sim who, along with partners, sold the NND trademark to Vancouver-based Diversified Royalty in 2019 for $52 million. But there are multiple factors that make the stock look attractive right now, especially to income-oriented investors. First, as the name suggests, it has exposure to a variety of sectors, which should serve it well in the possibly recessionary months ahead. It owns the trademarks not just to Nurse Next Door (health care) but to Mr. Lube (automotive), Sutton Group Realty (real estate), Oxford Learning Centres (education), Mr. Mike’s (food service) and Air Miles (financial services/consumer discretionary).
Second, like some other dividend stocks beaten down by this year’s market correction, DIV now offers a plush dividend yield of 8.2 per cent based on Tuesday’s closing price of $2.86. That’s about double what you can get for a five-year GIC!
And, finally, earnings are likely to improve as brands that came down with a bad case of COVID-related cash flow disruption like Mr. Mike’s stabilize.
Just keep in mind Diversified Royalty is still a minnow in a big ocean with a $360-million market capitalization. And ask yourself what Mr. Lube’s going to do when half the cars on the road are EVs.
Word on the street: “DIV’s royalty portfolio is nearing a full recovery, with Mr. Mike’s reaching pre-pandemic traffic and Mr. Lube generating double-digit year-over-year growth, far surpassing full-year 2019 same-store sales,” said Canaccord Genuity analyst Matthew Lee, who has a “buy” rating and $3.50 target on the stock, in a note to clients. “Importantly, DIV’s payout ratio has dropped below 100 percent, which has allowed management to raise its dividend in the quarter, indicating confidence in the firm’s trajectory.”
Coming and going: Vancouver-based Ero Copper Corp. (TSX:ERO) was the best performer in the S&P/TSX Capped Index in the mostly miserable third quarter, rising 42%.