Royalties & licensing: investors can win with ARM Holdings, RE Royalties and Franco-Nevada!

Franco-Nevada: a luxury problem, really

Royalties have long been an established business model in mining. Franco-Nevada launched its business back in 1983. Today, the group is one of the largest players worldwide, with a market cap of around USD 42 billion. The principle is simple: Franco-Nevada often finances young resource companies in the exploration space, so-called junior miners, and in return receives a share of their future revenue. One of the most famous and earliest deals was the stake in the Goldstrike mine in Nevada, which later became one of the largest gold deposits in the world. Today, Franco-Nevada owns more than 400 assets around the world. 35 come from the energy sector, 25 are in the gold space. On top of that come hundreds of small development projects expected to generate cash flows in the future.

Over the years and decades, these royalties have become an extremely lucrative business model, as the latest quarterly figures show. After a record year in 2025 with earnings per share of USD 1.85, Franco-Nevada also hit historic highs in the first quarter. Thanks to high gold and silver prices, revenue rose 77% year-on-year to USD 650.7 million. Net income grew even more disproportionately, up 123% to USD 468.6 million, or USD 2.43 per share. A total of 136,353 gold-equivalent ounces were sold. Precious metals made up almost 87% of total revenue, with two-thirds of that coming from gold. Notably, the margin per unit sold rose 77% to USD 4,534, while cash costs per GEO increased by only 12% to USD 341.

With a liquidity position of around USD 3.4 billion, the group is on very solid footing, and it carries no debt. In the second quarter, Franco-Nevada is unlikely to repeat this record result given the pullback in precious metal prices. Margins are set to remain high, however. Franco-Nevada also has a luxury problem: because of its high revenue, it has to close ever-larger deals, and competition in the sector is rising, which is making royalties more expensive. That's because exploration companies can currently raise capital through share issues much more easily than they could just a few years ago.

RE Royalties: the speedboat among financiers

The cleantech sector also has royalty models. Solar and wind farms are ideally suited to this financing model, since they typically run for 20 years and continuously generate energy that can be sold. The sector is currently even enjoying a special boom. For one thing, prices in the solar sector keep falling. For another, the massive build-out of AI data centers in the US is fueling a special boom of its own, since the energy supply is seen as one of the bottlenecks to growth, as industry figures such as Nvidia boss Jensen Huang keep pointing out.

RE Royalties has existed since 2016 and has by now invested more than CAD 80 million in a broadly diversified portfolio of over 27 assets. The Canadians are far smaller than a Franco-Nevada, yet they are well positioned with more than 130 individual projects. The internal rate of return on the capital deployed is also impressive. According to the company, it has averaged more than 19% since inception. The company's reliability shows up in its pipeline, around 41% of which currently comes from longstanding business partners. Management under CEO Bernard Tan is aiming to build a portfolio that generates recurring and, ideally, long-term cash flows. Besides the classics, solar and wind, the portfolio also includes battery storage, renewable natural gas and hydropower. Not least, the company also invests in infrastructure projects for energy efficiency.

RE Royalties pursues two approaches to financing its partners. One is to traditionally acquire long-term royalties and provide capital in return, which then secures a certain share of revenue over 20 to 25 years. Alongside that, the company also supports companies with bridge loans, which typically have terms of one to three years. The competitive landscape here is manageable: RE Royalties focuses on the niche of financings between CAD 10 and 20 million. Large lenders such as banks or private equity funds usually consider these projects too small. With this approach, the company is growing continuously - over the past five years, revenue has increased by an average of around 60% a year.

RE Royalties COO Peter Leighton presented the business model at the International Investment Forum:

https://www.youtube.com/watch?v=5dQvcZkFR7E

For investors, the stock is above all a strong dividend play. The company has now been paying out reliably for more than two years. In the most recent quarter, it paid one Canadian cent per share. Annualized, that works out to a current dividend yield of more than 10%. Such high yields are rarely found on the market these days. What pleases shareholders, however, the management sees as a problem. That's because the high payout yield is a result of the low market cap, which currently stands at just CAD 17 million. Management itself holds almost a quarter of the shares (around 24%) and naturally wants the share price to rise. RE Royalties is therefore currently working with advisors from PricewaterhouseCoopers on a review of its strategy. As part of this process, the board will examine a broad range of potential alternatives, including, among others, a sale of the entire company, strategic partnerships, co-investments, or optimizing the capital structure through equity or debt financing. Management views this as a "natural evolution," since the company is about to enter its eleventh fiscal year and wants to position itself for future growth. One option here is longer-dated bonds. So far, the company has financed itself mainly through so-called green bonds with a five-year term. Royalties, by contrast, have durations of 20, 25 or 40 years. At this level, and given the strategic options on the table, RE Royalties stock offers investors plenty of potential. Anyone looking for a high dividend yield will find it here.

ARM Holdings: the brains behind the data centers

Nvidia, Google, Oracle, Amazon, AMD, TSMC or Meta: these are the names dominating the headlines these days when it comes to artificial intelligence, large language models (LLMs) or the fastest chips for AI data centers. Behind the scenes, however, a company from the famous English university town of Cambridge plays a decisive role. There, where Sir Isaac Newton once developed the law of gravity, is the headquarters of ARM Holdings. Unlike classic chipmakers, the company runs no factories, makes no physical chips and carries no inventory risk. ARM is instead the brains behind the processors, designing the underlying architecture (instruction set and processor IP) of chips and monetizing the technology through two highly efficient levers. First, the technology is licensed to chip developers such as Apple, Qualcomm, Nvidia or Google. In return, ARM receives an often substantial, upfront fee for access to the blueprints. Second, the company collects royalties. For every chip, the company receives a percentage of the sale price.

In this way, ARM, which was founded in 1990 as Advanced RISC Machines, has built what amounts to a worldwide monopoly with this approach. This stock's moat is enormous. Over 99% of all smartphones worldwide run on ARM, and the company is managing to gradually extend that dominance to PCs and data centers. In early May, ARM reported its figures for the fourth quarter and fiscal year 2026. Revenue for 2026 reached a record USD 4.92 billion (+23%). The strongest quarter in the company's history showed an adjusted operating margin of 49%. Dividends, however, are unlikely to come anytime soon. ARM is in an extreme growth phase, which is why large parts of its cash flow are being funneled into research and development.

The absolute driver right now is revenue from the AI data center segment, which has more than doubled year-on-year. Practically all tech giants use ARM processors because they consume significantly less energy than classic x86 processors. This year alone, the Nasdaq-listed ARM stock has nearly quadrupled. What currently speaks for the stock are its extremely long-term contracts with well-plannable cash flows. One factor working against it, however, is the extreme valuation. The stock is currently "priced to perfection." So nothing can afford to go wrong here.

Conclusion: royalty and licensing companies carry little operating risk but often benefit from very steady cash flows. With Franco-Nevada, investors are backing an established royalty group in the resources business. RE Royalties, in turn, benefits from the cleantech boom and its high dividend yield of 10%. With ARM Holdings, there is also a royalty play in the chip sector. But: the stock is "priced to perfection."