RE Royalties- The Model

An opinion piece by Tarik Dede (Apaton Finance GmbH).

High dividend yields often tempt investors to buy in. However, they are usually a sign that investors are steering clear of a stock. After all, these high yields are often based on analyst estimates. But the market does not always factor in the risks.

The situation is quite different with RE Royalties. With this Canadian company, investors can currently reap an annual dividend of CAD 0.04 per share—representing more than 10% of the current share price. Yet this has nothing to do with future estimates or operational problems. In this respect, RE Royalties is a true dividend gem on the international stock market.

The Canadian company has applied the royalty model from the oil and mining sectors to the renewable energy sector and is investing heavily in solar and wind farms, battery storage, and hydropower. To date, more than 130 individual projects have been financed; in return, the company receives royalties, thereby securing its share of the projects' revenues—often for decades. As a result, the increase in revenue in the second quarter is primarily attributable to the commissioning of newer solar and energy storage portfolios in North America, as well as revenue from wind farms. In the first half of the year, RE Royalties also secured additional capital commitments for royalty financing in the battery energy storage sector (BESS) and for solar projects in the US and Canada.

Nevertheless, even management, which holds about a quarter of the company's shares, is not satisfied with the stock's performance. As a result, the company has enlisted PricewaterhouseCoopers to review its strategy. According to RE Royalties, this review includes not only strategic partnerships, co-investments, and the optimization of the capital structure but also the sale of the entire company.

As a result, investors in the stock can count on a high dividend and potentially benefit from a takeover premium. RE Royalties currently has a market capitalization of just CAD 16 million. This low valuation accordingly offers potential.

Read the full article here.