Stock markets have been a bit challenged recently because of the Omicron variant. But some stocks are still very much on the up. One such example is the AIM-listed investment company Duke Royalty (LSE: DUKE). The penny stock has shown a solid performance over the past year, with a 45%+ increase in share price.
Duke Royalty gains
Now, it could be argued that many other stocks have also seen big increases over the past year. After all, last year around this time, the stock market rally had just about gotten underway. The real increases in stock prices were seen over the course of 2021. That is true of course, but not all stocks have maintained their increases.
In fact, because of growing challenges from the withdrawal of policy stimulus, a potential slowdown of the Chinese economy, and high inflation, I can think of more than one stock whose gains from last year’s market rally have been all but wiped out. There are those that have sustained at least some of their gains, of course. To me these stand out, and Duke Royalty is one of them.
Robust results, dividend payouts
I think there are plenty of reasons why Duke Royalty has been able to to hold onto its share price gains. First, consider the company’s recent results. For the six months ending 30 September 2021, the company reported a huge 78% increase in revenue from the corresponding time last year. And its net profits grew by a significant 50%.
Next, its outlook is also robust. As per its CEO, Neil Johnson, it is expected to “exceed the market’s expectations for the 12 months ended 31 March 2022”. This could translate into an even higher share price. Companies that perform well consistently can often see a corresponding rise in share price as well.
It also helps that the company pays a dividend. Its dividend yield is somewhat low at 2.3%, but I am not complaining. If I were to buy the stock, it would be for capital gains, but earning passive income alongside is always a welcome addition.
Alternative financing
I also like Due Royalty’s business model, which focuses on royalty financing, as the name suggests. This is an alternative financing solution, in which the investor gets a percentage of revenues that a company earns. It might be a relatively new concept, but it is clearly working out well for the company. After struggling during the pandemic last year, it has been able to work its way back into the green now.
Would I buy the penny stock?
And last but certainly not the least is the fact that it is a penny stock, priced at 45p as I write. And by the looks of it, I am hopeful that it might not remain so much longer if it continues to thrive. There is an ‘if’ there, though. The discovery of the new variant is really holding back recovery and might even send us back into lockdowns. Who knows! Considering that its portfolio companies are most likely to be small businesses, which are more likely to suffer in a slowdown, it could face a setback again.
But, I think that over the next few years, it could make gains as the recovery takes root. I would definitely consider buying it in 2022.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
