The goal of a dividend investor’s portfolio should be to provide a reliable source of passive income, regardless of fluctuations in the market.
One such TSX-listed company is Alaris Equity Partners Income Trust (TSX:AD.UN), which invests in alternative assets and lends money to private companies that are doing well.
Alaris provides income investors with consistent dividends supported by diverse and steady cash flows, with a forward dividend yield of 8.83%.
Would you recommend this high-dividend stock to someone looking to invest today? We should examine it more closely.
An Introduction to Alaris Equity Partners
In return for regular payments, Alaris finances prosperous private middle-market businesses all over North America. Distributions are tied to financial performance and benchmarked to an initial yield in the company’s preferred equity structure.
By combining the liquidity benefits of debt with the equity-like returns, this novel strategy provides Alaris with a winning combination. Companies with proven track records of profitability and free cash flow creation are given capital, which ensures that the payouts are trustworthy.
In a wide range of industries, including distribution, healthcare, consumer goods, hotels, and more, Alaris has over 20 market-leading private companies in its portfolio. Investments between 20 million and 100 million dollars are common.
With the help of these investments, Alaris is able to support its business partners in expanding into new areas, acquiring complementary businesses, transferring ownership, and experiencing liquidity events.
How the Business Model Drives Recurring Cash Flows
The majority of Alaris’ investments go to founder-owned businesses that are unable to get capital through more conventional means. Deal flow and partner diversity are provided by this sizable and underdeveloped sector of the private capital markets.
In order to maximize risk management, the corporation uses less debt and requires its partners to do the same. Operating expenses, which are kept below 20% of sales by the capital light strategy, are more than covered by cash yields averaging 13%.
Because of these things, we are able to generate consistent cash flow regardless of the market conditions and achieve EBITDA margins of over 80%. Capital from recent stock raising and the addition of two to four new partners each year allow Alaris to increase its rewards even further.
Attractive Dividend Profile Plus Upside Potential
Alaris has announced a quarterly dividend payment of $0.34 per share for the first quarter of 2023. At the present share price at $15.40, this works out to $1.36 per annum and a forward yield of 8.83%.
Since going public in 2008, the company’s payment has grown annually. The increase in dividends from $0.21 to $0.34/share occurred throughout this period. Going ahead, investors should anticipate a yearly organic growth rate of 3-5% from current partners, along with incremental yields from new deployments.
Alaris, however, provides a lot more than simply a healthy dividend return. Additional benefits accrue when the organization shares in the success of its business partners. The cash yield on Alaris’ investment grows in tandem with the growth in revenues and earnings of these firms.
Lucrative redemptions for Alaris are also possible if the value of the underlying partnerships appreciates. The profits from these sales have been a significant part of overall returns for the last ten years.
Financial Results Confirm Growth Trajectory
The strength of Alaris’ model was demonstrated by its recently announced Q3 2022 results. With a 9.6% year-over-year rise, revenues reached $1.04 per unit. At $1.85/unit, EBITDA increased by more than 100%. A 109 percent increase in basic earnings per share was the result of these enhanced cash flows.
During the first three quarters of 2022, the company distributed an additional $130 million to both new and existing partners. Future distributions to unitholders will be higher due to these capital allocations.
In addition to being able to finance more deals, Alaris has a strong pipeline of potential prospects. The Trust’s available capital was $250 million at the end of the quarter. Contributions planned for late 2022 and 2023 already totaled $115 million.
These fresh investments, when added to the underlying growth among existing partners, will compound the cash flows that are available for distribution. This continues an already remarkable streak and paves the way for future dividend hikes.
Is This High-Yield TSX Stock a Buy Today?
If you are an income investor seeking private companies that can withstand inflation, Alaris Equity Partners is the way to go. With promising future development, the 8.83% dividend yield translates to an average cash yield of 13% for the company.
In comparison to its competitors, Alaris stands out thanks to its rigorous due diligence process that safeguards capital and its exceptional liquidity provided by monthly cash payments. The risk-reward profile becomes more attractive when you consider the alignment of the experienced management team through strong insider ownership.
The huge economic moat and capital-light approach of the corporation offer much-needed stability in the wildly unpredictable stock market. With Alaris, investors may get into the huge private middle market that powers the economy as a whole.
Regular organic growth, new deployments, follow-on contributions to current partners, and redemptions of profitable investments all provide opportunities for unitholders to compound their income. This lays out a clear plan for increasing passive income streams with little to no risk.
Dividend investors may consider purchasing shares in Alaris Equity Partners if they are looking for a company that pays dividends on a regular basis, protects their money from inflation, and has the potential to gain from private market activity.