The “Five Pillars” that comprise our theory for the optimal dividend stream:
1. Low volatility in the cash flows
The distributions that we receive from our Partners are based on a top-line performance metric and are paid in priority to other equity holders. We are paid the distributions monthly and therefore receive monthly cash returns instead of relying on an exit to generate our returns. At the onset, we try to ensure that our Partners have adequate cash flow coverage on the distributions to Alaris and also insert protective covenants into our agreements in order to further protect our financial interests. Additionally, the majority of our distributions have volatility reducing collars which limit the amount each Partners’ distribution can go up or down in a given year.
2. Visibility into the future cash flows
The distributions that we receive from our Partners are set twelve months in advance based on the yield of the original capital cost contribution and are adjusted annually based on an audited top-line performance metric that is specific to each Partner. Further contributing to the visibility of our cash flows, our operating expenses are relatively low and consistent for a company of our size, which has proven the Alaris model is scalable.
3. diversified revenue stream
Our long-term goal is to have no single revenue stream greater than 10% of total revenue. We feel that if our revenue streams are appropriately diversified and we maintain an appropriate payout ratio, we will have reduced our reliance on any one revenue stream and can maintain our current dividend rate under various negative scenarios.
4. Increase in cash flow on a per share basis
Our historic growth, as a result of organic growth in existing revenue streams as well as additional revenue streams from new Partners, has led to 8 consecutive dividend increases since April 2010 and a monthly dividend increase of 79% per share over that time. Organic growth in our revenue streams, as well as making accretive contributions to new and existing Partners, will lead to further growth in our cash flow on a per share basis.
5. Provide liquidity for shareholders
Alaris has consistently increased its float through successful equity offerings to fund accretive investments. This has helped to increase average daily trading volumes and provide ample liquidity for our shareholders.