Monthly Dividend Stock In Focus: Diversified Royalty Corporation

Published on March 31st, 2025 by Felix Martinez

Diversified Royalty Corporation (BEVFF) has two appealing investment characteristics:

#1: It is a high yield stock based on its 8.9% dividend yield.
Related: List of 5%+ yielding stocks.

#2: It pays dividends monthly instead of quarterly.
Related: List of monthly dividend stocks.

You can download our full Excel spreadsheet of all 76 monthly dividend stocks (along with metrics that matter like dividend yield and payout ratio) by clicking on the link below:

Diversified Royalty Corporation’s above characteristics, namely its high yield and monthly dividend payments, make it an attractive candidate for income-oriented investors.

But there’s more to the company than just these factors. Keep reading this article to learn more about Diversified Royalty Corporation.

Business Overview

Diversified Royalty Corporation, based in Canada, is a multi-royalty corporation that acquires royalties from multi-location businesses and franchisors in North America. The company owns the trademarks of Mr. Lube, AIR MILES, Sutton, Mr. Mikes, Nurse Next Door, and Oxford Learning Centers.

The company, formerly known as BENEV Capital, changed its name to Diversified Royalty Corporation in September 2014. Its objective is to acquire predictable, growing royalty streams from diverse multi-location businesses and franchisors.

Diversified Royalty Corporation has been building a diversified portfolio of royalties from multi-locations and franchisors in Canada. It also intends to expand its business model in the U.S. To this end, the company has been promoting its business model at various International Franchise Association events in the U.S. Its expansion efforts bore fruit with Stratus, the company’s first royalty transaction in the U.S.

Stratus is an industry-leading franchisor in commercial cleaning and building maintenance, offering both master franchises and turn-key janitorial unit franchisees across North America. The global commercial cleaning industry is immense and grew by 5.8% annually between 2015 and 2022. It is expected to grow 6.7% per year from 2023 to 2030.

Source: Investor Presentation

Growth Prospects

Diversified Royalty Corporation has exhibited a somewhat volatile and inconsistent performance record, partly due to the effect of the gyrations of the exchange rate between the Canadian dollar and the U.S. dollar. Nevertheless, the company has grown its average earnings per share by 10.2% annually, from $0.07 in 2016 to $0.11 in 2024.

Moreover, the aforementioned royalty acquisition of Stratus will likely prove to be a significant growth driver for the company. Stratus expects to grow from 68 Master Franchisees up to 150 across the U.S. and Canada over the next 5-10 years.

Source: Investor Presentation

Stratus has grown its system sales by an average of 21% per year over the last five years. As its business has ample room for future growth, one can reasonably expect the company to meet or exceed its above growth target over the next decade.

Given Diversified Royalty Corporation’s historical growth record and expected business acceleration thanks to its major recent acquisition, we expect 5.0% average annual growth of earnings per share over the next five years.

Dividend & Valuation Analysis

In contrast to many companies that cut their dividends in 2020-2021 due to the coronavirus crisis, Diversified Royalty Corporation defended its dividend during that downturn. In addition, the company recently raised its dividend by 2%, offering an exceptionally high dividend yield of 8.9%.

However, it is essential to note that the company has kept its dividend unchanged over the last six years. During this period, it has marginally raised its dividend in CAD a few times, but the strengthening of the USD versus CAD has offset these raises.

Moreover, Diversified Royalty Corporation currently has a proforma payout ratio of 100%, which is very high.  Overall, due to the remarkably high payout ratio and the material debt load of Diversified Royalty Corporation, the dividend has a thin margin of safety and may be cut whenever the next recession shows up.

In reference to the valuation, Diversified Royalty Corporation has been trading for 13.7 times its earnings per share in the last 12 months. Given the company’s promising growth prospects, we assume a fair price-to-earnings ratio of 18.0 for the stock. Therefore, the current price-to-earnings ratio is lower than our assumed fair price-to-earnings ratio. If the stock trades at its fair valuation level in five years, it will incur a 4% annualized in its returns.

Taking into account the 5% annual growth of earnings per share, the 8.9% dividend, and a 4% annualized tailwind from valuation, Diversified Royalty Corporation could offer a 17% average annual total return over the next five years. This is a fairly attractive expected return for income-oriented investors, who may consider purchasing the stock around its current price.

Final Thoughts

Diversified Royalty Corporation has an attractive business model. It does its best to add reliable and growing royalty revenues to its income stream, aiming to offer a rising income stream to its shareholders.

Moreover, the company has promising growth prospects ahead. Its recent royalty acquisition of Stratus is the company’s first transaction in the U.S., which is likely to be a significant growth driver in the upcoming years thanks to Stratus’s promising growth potential and the mid-single digit annual growth of royalties from this deal. Moreover, investors should expect similar transactions in the U.S. in the coming years.

The only caveats are Diversified Royalty Corporation’s sensitivity to recessions and its exceptionally low trading volume, which makes it hard to purchase or sell a large position in this stock.

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