3 Dividend Stocks Yielding Over 7% to Buy Right Now

High-yield dividend stocks such as Diversified Royalty offer investors to create a passive-income stream at a low cost.

| More on:

Investing in royalty stocks can provide you with a low-cost way to create a passive-income stream. Generally, these companies own rights to royalties, providing steady income that is insulated from fluctuations in cash flows and earnings.

An asset-light business model allows royalty companies to offer shareholders a tasty dividend yield, making them attractive to income-seeking investors. Here are three such dividend stocks yielding over 7% you can buy right now.

Diversified Royalty stock

Valued at $400 million by market cap, Diversified Royalty (TSX:DIV) offers you a forward yield of 8.8%. A multi-royalty company, DIV acquires royalties from multi-location businesses and franchisors. Diversified Royalty owns Mr. Lube, AIR Miles, Stratus Building Solutions, Mr. Mikes, Sutton, Nurse Next Door, and Oxford Learning Centres trademarks.

In the first nine months of 2023, Diversified Royalty increased adjusted sales by 21.3% year over year to $44 million. Its distributable cash in this period rose by 21% to $27.7 million. Given its quarterly dividends of $0.060 per share, the company ended the third quarter (Q3) with a payout ratio of 94.4%, up from 86% in the year-ago period.

Diversified Royalty closed a trademark acquisition and royalty agreement with BarBurrito Restaurants last October, adding an eighth royalty stream to its portfolio.

In addition to its high dividend, DIV stock also trades at a discount of more than 50% to consensus price target estimates.

Freehold Royalties stock

An oil and gas royalty company, Freehold Royalties (TSX:FRU), currently offers you a dividend yield of 7.7%. A strong quarter in Q3 of 2023 allowed Freehold Royalties to report operating funds flow of $65 million or $0.43 per share while returning $41 million or $0.27 per share to shareholders in dividends.

It indicates Freehold Royalties has a payout ratio of 62%, providing it with the flexibility to lower its balance sheet and reinvest in growth projects. The company reduced net debt by 19% in the last three months, and its high-margin portfolio allows Freehold to fund its dividend even if oil prices move lower in the near term.

Last month, Freehold Royalties entered into definitive agreements with two private sellers to acquire high-quality royalty assets in the Midland basin in Texas and the Delaware basin in New Mexico for $112 million, which should drive future cash flows higher.

Analysts expect Freehold Royalties stock to surge by 33% in the next 12 months. After accounting for dividends, total returns will be closer to 40%.

Alaris Equity Partners stock

The final TSX dividend stock on my list is Alaris Equity Partners (TSX:AD.UN), which yields 8.2%. Alaris provides alternative financing to a diversified group of private businesses in exchange for royalties or distributions with the aim of generating cash flows that can be distributed as dividends to shareholders.

Alaris Equity deployed $130.1 million in the last three quarters and is expected to end 2024 with a payout ratio between 65% and 70%, which is not too high.

Priced at less than six times trailing earnings, Alaris Equity is among the cheapest dividend stocks on the TSX and trades at a discount of 16% to consensus price target estimates.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Alaris Equity Partners Income Trust and Freehold Royalties. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »