The Toronto Stock Exchange was hobbled by Trump tariffs at the start of 2025, but eventually defied the headwind. As of this writing, the 10.5%-plus year-to-date gain reflects the remarkable resilience of Canadian stocks.
If I were to make a portfolio move to navigate the tariff mayhem, I’d put my entire 2025 Tax-Free Savings Account (TFSA) contribution limit into Diversified Royalty (Tsx: div). Besides the $3.28 share price, the dividend yield is a mouth-watering 7.9%. My $7,000 can buy 2,134 shares and generate $45.85 tax-free income monthly.
This $554.95 multi-royalty corporation is a “strong buy” owing to its steady, if not stellar, performance amid a complex environment. A diverse group of businesses in the royalty pool provides predictable and consistent royalty streams. DIV is also one of the few TSX stocks that pay monthly dividends.
Royal quality
Diversified Royalty has earned a quality royalty status through its successful acquisition of accretive, top-line royalties over the years. It has seven Canadian royalty partners, led by Mr. Lube + Tires. AIR MILES, Sutton, Mr. Mikes, Nurse Next Door, Oxford Learning Centres, and BarBurrito complete the domestic cast. Stratus Building Solutions and Cheba Hut are the royalty partners in the United States.
Cheba Hut is the newest royalty partner. On June 17, 2025, DIV acquired its worldwide trademark portfolio for US$36 million, but did not raise equity. The food chain offers a diverse menu, serves toasted sub sandwiches, and refreshing beverages. Its target market is the generation of partiers.
DIV President and CEO Sean Morrison, said, “We believe Cheba Hut’s impressive track record of growth is a result of its strong store-level economics, the quality of its franchisees, and the experience of its management team.” The royalty corporation intends to promote its royalty model and build significant momentum in the U.S. market.
With nine royalty streams across various industries and geographic exposures, the company anticipates further increasing cash dividend payments to shareholders. Regarding payouts to shareholders, the small-cap stock has consistently paid monthly cash dividends since 2014.
Financial results
In Q1 2025, total revenue (royalty income and management fees) increased 3.7% to $15.6 million. Income for the period rose 6.5% to $8 million compared to Q1 2024. Morrison said, “The first quarter of 2025 once again saw a strong performance from our top royalty partner, Mr. Lube + Tires.” The latter accounts for 43% of portfolio revenue.
However, Morrison notes the decreasing royalty income from AIR MILES because of the continued softness. DIV also announced a Board-approved 10% dividend hike to its annual dividend effective July 1, 2025. The Dividend Reinvestment Plan (DRIP) is available to eligible stock investors who wish to reinvest all or part of their cash dividends on their common shares.
Stock performance
DIV is among the top-performing Canadian small-cap stocks thus far in 2025. Current investors enjoy a market-beating return of 18.6%-plus in addition to a juicy dividend yield. The overall return of 61.4%-plus over three years represents a 17.2% compound annual growth rate (CAGR). You have compelling reasons to hold this monthly income stock in your TFSA.