Alaris Royalty Corp (AD.TO)

Had a tough time trying to figure out who they are actually stepping into a royalty situation with. They have about 14-15 royalties with 5 of them not paying right now. To him, this is a “wait and see”. Doesn’t think the dividend is at risk, but if 2 or 3 of these royalties were to blow up, then you might be in trouble. If you own, consider selling it.

They announced news that was mostly negative and the stock dropped. Their dividend payout is within their earnings, so he feels it is safe. They have three parts of their portfolio that are underperforming, but others are growing well.

Has not been very positive on this name. Doesn’t think they earn enough returns for what he is looking for.

This invests in private royalties for other companies and has a nice portfolio of about 20 companies. 5 of them are accruing and some are not doing that well. The key thing investors are forgetting is that their larger companies are doing very well, so if you are going to have a problem, you want it to be your smallest investments. They missed on earnings and the stock took a hit, and they decided to not take a payable on one of their investments, and just wrote it off. They earn 15%-16% royalties on some of their investments. You do not get that type of return without taking a few hits on the way. Doesn’t think this is as bad as the stock price indicates. Thinks their payout ratio is at about 80%, so he is not really too concerned about the dividend sustainability.

The challenge is that they are lending to what he would deem as stressed companies. These companies would source bank financing if they could, so that puts it in a higher risk camp. He couldn’t understand what their value add was. When he went through their struggles through the years, there was no consistency to their mistakes. One loss could wipe away 3 or 4 potential strong underlying opportunities, which was not a ratio he was comfortable with.

Just reported earnings. The market was looking for some resolution on some of their partnerships, which he felt came out negatively. They also didn’t talk about any new partnerships. As a result, this had a fairly negative day today. He wouldn’t be surprised if it had another day or 2 of weakness and then probably stabilizes. They are going to continue to grow their distribution over time.

(A Top Pick June 8/15. Down 2.12%.) A company that he really admires, but not that well understood in the market. Basically they put money out at, say 15%, and then they pay a dividend at around the 16% level, and they are continually expanding the companies that they have investments in. Extremely well-managed. He would be a buyer under $30.

Basically does preferred equities to private companies. It fits well because private companies don’t want to give up control. They go in with a caller strategy and a preferred equity, and get paid a dividend on that. Almost like a royalty business. Have well over 15 businesses in their portfolio giving them a very diverse revenue stream. Payout ratio is less than 100%. A good business model for a yield investor.

This is held in his income model. He likes the dividends. There are some technically favorable factors as it broke a downtrend and has not moved back into it.

This is a great, great company. A royalty owner in non-resource private companies. A really well run company with a conservative balance sheet. Trading at 13X 2007 earnings. Thinks there has been 10 dividend increases over the last 5 years. Dividend yield of 5.3%.

A company that invests in private companies by preferred shares. Management retains control of the company. As long as the company and dividends continue to grow, then if they get into trouble those preferred shares can flip into equity. They had a bit of a setback as they worked out some things with some of their investees. They have managed to resolve most of those difficulties and the company is starting to recover. They tend to make about 15% on their investments and they increase their dividend as their revenues grow. He owns it personally. About 6% dividend.

It is attractive at this price level. It has sold off, but they invest in exchange for royalties. They don’t take ownership in the companies. Whenever they invest, you see an uptick in revenues and profits. They normally get a 15% return. It is attractive at this point. Their balance sheet is pretty decent.

Makes investments within private companies, and holds a stable of companies within that. They get a return on their capital from that. The company holds about 12 positions in their portfolio, with a lot of the exposure in Western Canada and Alberta. That region is experiencing difficulty. Even in good times he doesn’t think their business model is such that they charge enough for providing capital. Prefers Grenville Strategic Royalty (GRC-X).

Royalties of income streams from non-resource companies. The beauty is that it has the appeal of the royalty type structure, but in a non-resource setting. Has had its biggest pullback in a long, long time. Have about a 75% payout ratio, so the dividend is very, very safe. Trading at 13X this year’s earnings and 10X 2017 earnings with about a 7% free cash flow yield. Dividend yield of 6.8%.

This has a unique model where they make investments in companies and get a royalty. The royalty can be on sales, gross profit or other things. He always likes to take a deep dive when looking at companies he is investing in, and is wary of companies that buy royalties from other companies. He wants to know what they are buying and you don’t always get that in the financials. Dividend yield of 7%.