Is the 8.3% Yield of This TSX Dividend Stock a Good Investment?

In the world of TSX dividend stocks, identifying hidden gems with promising growth potential is a strategy that can yield significant returns. One such potential star on the Toronto Stock Exchange (TSX) is Alaris Equity Partners Income Trust (TSX:AD.UN). With a forward yield of 8.3%, this Canadian stock presents a compelling case for investors seeking high dividends and significant upside in 2024.

Image Credit: Pexels

Exploring Alaris Equity Partners: A Deep Dive

Alaris Equity Partners, boasting a market capitalization of $750 million, operates as a private equity company specializing in management buyouts and growth capital investments. Distinguishing itself from start-up or turnaround investments, Alaris focuses on companies with stable financials, avoiding sectors with declining asset bases, such as oil and gas.

The company's investment approach involves providing alternative financing to companies seeking capital for partial liquidity, recapitalization, and growth. By securing royalties or distributions, Alaris aims to generate consistent and predictable cash flows, ensuring robust dividend payments to shareholders. Investments are strategically made in economically developed regions, including Canada, the U.S., and Europe, with a portfolio comprising companies with low debt levels and reliable profit generation.

Q3 2023 Performance: A Glimpse into Strength

Alaris Equity's Q3 2023 results underscore its resilience and performance. Reporting a revenue increase of 10% year over year, amounting to $47.2 million, the company showcased the robustness of its diversified portfolio. Deploying $130.1 million across multiple companies in the last three quarters, Alaris secured annual contracted distributions of $13.4 million.

Benefiting from improved investor sentiment, the fair value of its investments surged by $40 million in Q3. Alaris achieved earnings of $1.40 per unit, accompanied by distributions of $0.34 per unit, marking a 10% increase over the past two years.

Future Outlook: What Sets Alaris Apart

Alaris Equity Partners stands out with a unique investment strategy blending equity-like returns with debt-like protections. The existing portfolio delivers an enticing baseline cash yield of 13%, coupled with the potential for incremental growth and capital appreciation gains.

A scalable business model featuring low overhead costs positions Alaris to enjoy EBITDA margins exceeding 80%. Historical data indicates annualized returns of over 16% on exited investments, showcasing the company's prowess in generating value.

Alaris presents investors with access to a differentiated asset class, providing entry into high-quality, industry-leading private companies that were traditionally accessible only to high-net-worth individuals.

Financial Snapshot: An Undervalued Opportunity

Analysts predict Alaris's adjusted earnings to reach $2.33 per share in 2023, translating to a forward earnings multiple of merely seven times. This undervaluation places Alaris Equity Partners in the category of highly affordable TSX stocks. Bay Street anticipates a 20% gain in the stock over the next 12 months, underscoring the significant potential for investors.

Conclusion: Navigating the TSX with Alaris Equity Partners

As investors seek to fortify their portfolios with high-dividend stocks, Alaris Equity Partners emerges as a hidden gem on the TSX. Its strategic investments, resilient performance, and compelling financial outlook position it as an attractive choice for those eyeing substantial dividends and future growth. As market dynamics evolve, Alaris Equity Partners stands ready to unlock value for shareholders, offering a unique avenue to tap into the promising landscape of private equity.