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Investing in high-dividend stocks can be a double-edged sword. While a tempting dividend yield may seem appealing, it's crucial to assess whether the stock price is depressed due to broader market conditions or underlying company issues.
Ideally, high-dividend stocks should come from companies with pricing power and stable cash flows across market cycles. These companies should also maintain a sustainable payout ratio, allowing them to reinvest in growth initiatives, ultimately leading to higher cash flows and dividends.
One such TSX stock with a dividend yield exceeding 10% is Fiera Capital (TSX:FSZ). Currently trading 44% below its all-time highs, Fiera Capital offers a forward yield of 10.2%.
Fiera Capital is an asset management firm with a growing global presence, generating revenue from commissions or fees based on total assets under management (AUM). Despite the cyclical nature of asset managers, Fiera Capital saw an increase in AUM to $161.7 billion in 2023, attributing the growth to strong performance in global equity markets.
In Q4 2023, Fiera Capital reported revenue of $211 million, up from $184.7 million in the previous year, driven by the increase in AUM. With a focus on lowering its cost base, the company reported an adjusted EBITDA of $77.6 million, up from $52.8 million, improving its margin to 36.8% in the last 12 months.
Looking ahead, Fiera Capital plans to focus on distribution and sales in key geographic regions while exploring new markets to drive business opportunities. The private markets segment is expected to be a key growth driver, given its significant increase in AUM and sales over the past three years.
With improved profit margins, Fiera Capital strengthened its balance sheet and ended 2023 with free cash flow of $89.2 million. Despite spending approximately $74 million on dividends with a quarterly payout of $0.215 per share, the company maintained a payout ratio of 83%.
Trading at 8.3 times forward earnings, FSZ stock appears attractively priced, considering its high dividend yield and expanding earnings base. However, investors should conduct thorough due diligence to assess the sustainability of Fiera Capital's dividend payout and its long-term growth prospects before making investment decisions.
