SIR Royalty Income Fund (SRV.UN) Fair Value Analysis (2026)

Executive Summary

Based on its fundamentals as of November 18, 2025, SIR Royalty Income Fund (SRV.UN) appears to be fairly valued, leaning towards overvalued. The current stock price of $14.20 is supported almost entirely by its high dividend yield of 8.44%, but this comes with significant risk, as the company is paying out more in dividends than it earns, evidenced by a 122.7% payout ratio (TTM). The stock's Trailing P/E ratio of 15.11 is comparable to peers like The Keg Royalties Income Fund (15.40) and Pizza Pizza Royalty Corp (15.50), suggesting it is not cheap on an earnings basis. Currently, the stock is trading in the upper third of its 52-week range of $11.11 to $14.99, indicating limited near-term upside. For investors, the takeaway is neutral to negative; while the income stream is attractive, its sustainability is a major concern, making the stock's value proposition questionable at this price.

Comprehensive Analysis

As of November 18, 2025, a detailed valuation analysis of SIR Royalty Income Fund (SRV.UN), priced at $14.20, suggests the stock is trading at or slightly above its intrinsic worth. The fund's primary appeal is its high dividend, but key metrics indicate this may not be sustainable, placing a cap on its fair value. A triangulated valuation using multiple methods points to a stock that offers a high but risky yield, with limited room for capital appreciation. SIR Royalty's valuation multiples are largely in line with its Canadian restaurant royalty peers. Its Trailing P/E ratio of 15.11 is nearly identical to The Keg's 15.40 and Pizza Pizza's 15.50. Similarly, its EV/EBIT ratio of 10.25 is comparable to The Keg's 10.76. This peer comparison suggests SRV.UN is not undervalued. Applying a peer-average P/E multiple of ~15.3x to its TTM EPS of $0.94 would imply a fair value of $14.38, very close to its current price. The most critical valuation lens for a high-yield entity like SRV.UN is its cash flow and yield. The dividend yield of 8.44% is the main reason to own the stock. However, a simple dividend discount model highlights the risk. Assuming a 10% required rate of return and a conservative 1% long-term growth rate, the implied value is $13.33. More concerning is the TTM payout ratio of 122.7%, which means the annual dividend per share ($1.20) exceeds the trailing twelve months' earnings per share ($0.94). This is unsustainable and signals a high risk of a future dividend cut. Combining these methods, the valuation appears constrained. The multiples approach suggests a value around $14.38, while the dividend-based valuation points lower to $13.33 due to sustainability risks. A fair value range of $12.50–$14.50 seems reasonable, and the current price of $14.20 sits at the high end of this range, confirming the stock is, at best, fairly valued with downside risk.

Factor Analysis

Forward Price-To-Earnings (P/E) Ratio

Fail

Forward P/E data is unavailable, and with recent earnings growth being negative, it's unlikely that future earnings will make the current Trailing P/E of 15.11 look cheap.

The provided data shows a Forward P/E of 0, indicating a lack of analyst estimates. The Trailing P/E ratio is 15.11. Key peers like Pizza Pizza Royalty Corp and The Keg Royalties Income Fund have similar trailing P/E ratios of 15.50 and 15.40, respectively. However, SIR Royalty's recent quarterly EPS growth was sharply negative (-69.84%). Without a clear path to earnings recovery, the current P/E ratio does not appear attractive, and the absence of forward estimates is a concerning sign of low visibility.

Price/Earnings To Growth (PEG) Ratio

Fail

No official PEG ratio is available, but with a P/E of 15.11 and recent sharply negative earnings growth, the implied PEG would be highly unattractive.

The PEG ratio, which compares the P/E ratio to the earnings growth rate, cannot be calculated meaningfully as recent EPS growth is negative. In the most recent quarter, EPS growth was -69.84%. A company needs positive growth for the PEG ratio to be a useful valuation tool. A stock with a P/E of over 15 and negative growth is fundamentally mismatched for investors seeking growth at a reasonable price.

Total Shareholder Yield

Pass

The stock passes based on its very high current dividend yield of 8.44%, which is the primary attraction for income-seeking investors.

The main appeal of SRV.UN is its substantial shareholder return via dividends. The current dividend yield is an impressive 8.44%. This is higher than key peers like Pizza Pizza (6.38%) and The Keg (6.2%). This factor passes because the yield itself is compelling for an income-focused strategy. However, this "Pass" comes with a significant warning: the payout ratio is 122.7%, indicating the dividend is not covered by TTM earnings. This creates a high risk of a future dividend cut. While the current yield is strong, its sustainability is in serious doubt.

Value Vs. Future Cash Flow

Fail

The stock appears overvalued as a simple dividend discount model suggests a fair value below the current price, and the dividend itself is not covered by recent earnings.

No analyst price targets or free cash flow growth figures are available. However, a proxy valuation using the dividend discount model (DDM) can be constructed. With an annual dividend of $1.20 and a required rate of return of 10% (appropriate for an income-focused investment with some risk), even a modest 1.5% perpetual growth assumption yields a fair value of $14.12, which is below the current price. More critically, the trailing twelve months' earnings per share is $0.94, which does not cover the $1.20 dividend. This negative coverage makes future cash flows to shareholders highly uncertain and implies the current dividend may be unsustainable without a significant earnings recovery.

Enterprise Value-To-Ebitda (EV/EBITDA)

Fail

The fund's EV/EBIT ratio of 10.25 is in line with peers, offering no evidence of undervaluation, and has increased from prior periods, suggesting a richer valuation.

The fund's trailing EV/EBIT ratio is 10.25. This is comparable to peers like The Keg Royalties Income Fund, which has an EV/EBIT of 10.76. While not excessively high, it provides no discount relative to its direct competitors. Furthermore, this valuation has expanded from its FY2024 level of 7.06, indicating that the valuation has become more expensive relative to its operational earnings over the past year. A rising multiple in the absence of strong growth is a negative indicator for value investors.