Duke Royalty (DUKE:43.5p) may operate in an area of finance that is under the radar, but it’s a company well worth getting acquainted with given that the directors have made smart progress investing the £79m proceeds from three equity raises (placings at 40p to 44p) to create a portfolio of sound royalty partners since listing its shares on London’s junior market in March 2017.
Moreover, the distributions from these royalty partners and a policy of declaring between 80 and 100 per cent of free cash flow as dividends supports a quarterly payout of 0.7p a share, and one that is predicted to rise to 0.9p a share in the financial year to March 2020. On this basis, the shares offer an 8.3 per cent prospective dividend yield.
Duke Royalty makes its money by providing capital to companies in exchange for rights to a small percentage of their future revenues over a typical term of 25 to 40 years. The company focuses on intellectual property assets and stable, cash-flowing businesses in the underserviced European markets. The benefits to the royalty partners over the alternative of raising equity is that this type of financing arrangement preserves their ownership rights, so is non-dilutive to existing shareholder interests; the owners continue to own and control their company; and Duke Royalty is generally a passive investor.