Comstock
Alaris Royalty Corp.
Thursday's close: $23.10, up 5 cents, or 0.2 per cent
52-week trading range: $16.10 – $24.36 a share
Annual dividend: $1.26 a share for a yield of 5.5 per cent
Analyst's ratings: There were 5 buys, no holds and no sells, according to Bloomberg data. Target prices ranged from $24.70 to $30 a share.
Recent history: Shares of Alaris Royalty, which provides financing to private companies in exchange for royalties, have been on a roll. Its stock has returned about 28 per cent so far this year, not including reinvested dividends. Last month, its board gave the nod for a fifth consecutive dividend increase, boosting the payout by six cents to $1.26 a share annually. Alaris provides monthly dividends, and the first one reflecting the increase will be paid on Jan. 15 to shareholders of record at Dec. 31. Alaris' North American partners include health-care provider LifeMark Health, End of the Roll carpet retailer and Labstat International LP, a tester of tobacco products.
Outlook: Alaris closed a deal on Wednesday with its 9th private company partner. It is investing $12.5-million (U.S.) in health-care provider Agility Health LLC for an annual preferred distribution of $2-million. Alaris is also set to provide follow-on financing to diagnostic equipment provider KMH Ltd. Partnership, and has just raised $47-million (Canadian) through a share offering that will help fund more deals.
"It's good for shareholders every time they do a new royalty deal," and the latest deals will increase earnings and cash flow per share, said Alex Russ, a portfolio manager with Northern Rivers Capital Management Inc. "The royalties rise over time as long as the company's results grow…On top of that, they are adding more streams to their portfolios [through new and follow-on financing]."
While Alaris just recently announced a third dividend increase for this year, "there will be another increase by this time next year," predicted Mr. Ruus, who owns Alaris stock. "I would be absolutely shocked if there were not at least three or four deals done 12 months from now...They have a big pipeline of companies that they talking to."
He currently has a 12-month target of $28.40 a share on Alaris. If it does several deals that boost earnings per share, "it could increase the dividend three or four times a year," he said. But there is also always a risk that Alaris could cut its payout, and it did so in 2009 when its partner Lower Mainland Steel Ltd. faced challenges during the financial crisis. "Still, Alaris tends to do a lot of due diligence, and invests with companies that have better-than-average businesses that are less affected by general economic hits," he said.