The company’s business model seems relatively straightforward, although it’s not something I’ve encountered before. It buys aircraft, leases them to airlines (in this case Emirates), and eventually sells them on. 

That structure was severely tested during the pandemic when all air traffic ground to a halt and the company fell into the red. But the turnaround since then has been impressive. 

Return on equity‘s (ROE) surged from a painful -54.3% in March 2020 to 41.5% in March this year. Meanwhile, the share price has climbed 87.7% in the past five years.

The dividend story

For investors chasing income, the real attraction here is the dividend yield. Currently, the company offers a massive 13% yield — the kind of number that immediately sparks interest. 

What’s more, it’s not a recent gimmick. The company’s paid dividends consistently for the last eight years. Coverage looks reassuring too, with a payout ratio of 38.4% and cash coverage of 3.9 times. That suggests payments aren’t being stretched to breaking point.

The next dividend’s expected to go ex in around a month and should be paid in two months’ time. For anyone looking for near-term income, that’s a tempting timeline. 

Of course, investors should always remember that historic payouts don’t guarantee future ones, but Doric’s record is certainly stronger than many other small-caps promising high yields.

Valuation and financials

On the balance sheet front, things look surprisingly clean. There’s no debt weighing the company down and liabilities are minimal. At a market capitalisation of just £138m, this is firmly in small-cap territory. That size brings both opportunities and risks. 

Valuation-wise, it has a price-to-earnings (P/E) ratio of 3, leaving plenty of scope for growth if the business expands. On the other, small-caps can be far more volatile, with liquidity issues making it harder to buy or sell shares in bulk.

The company’s business model’s also simple to the point of fragility. It depends heavily on the ongoing success of a single airline partner and a single type of aircraft. Any interruption to air travel — whether from economic downturns, geopolitical issues or health crises — could seriously impact lease payments. There’s also no guarantee that Emirates will renew its leases once they expire.

My verdict

So where does that leave Doric Nimrod Air 3? On the one hand, it’s not the most secure or diversified business out there. Reliance on a narrow revenue stream and limited liquidity make it a riskier prospect than most. On the other hand, the company’s delivered reliable dividends for nearly a decade and the current 13% yield is hard to ignore.

Overall, I think it’s an intriguing stock to consider for income investors, but only as a small position in a diversified portfolio. Picking up a few shares at low cost could deliver some decent passive income — provided investors are comfortable with the risks.

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