The Lazy Warren Buffett Model for Passive Income

Warren Buffett’s passive-income strategy can be replicated with Alaris Equity Partners (TSX:AD).

| More on:
close-up photo of investor Warren Buffett

Image source: The Motley Fool

Warren Buffett once said that there was no premium for complexity. In other words, you don’t need a complicated, stressful strategy to make money. Often, the easiest option is the best way to create wealth or passive income. 

With that in mind, here’s an easy, lazy way to replicate Warren Buffet’s investment strategy. 

Passive-income stock

Holding companies invest in other companies to extract a steady return on their investment. While Buffett’s holding company buys entire companies or common equity, some holding companies buy preferred stock, which has a fixed-return element.

Alaris Equity Partners (TSX:AD) is an excellent example. Alaris targets family-owned or founder-controlled small- and mid-sized businesses across North America. It offers them capital to expand the business without relinquishing control. Alaris targets 13-15% annual returns on these investments. 

The stock has been on a tremendous run recently. It’s up 117% since March of last year. While the stock is flat, year to date, it is turning out to be an ideal play for investors eyeing passive income.

Core business

Alaris is a smart play for investors looking to gain exposure in the asset management business. The company specializes in buyouts, growth capital, and mature investments. As lower middle market companies come to it to recapitalize their equity, the company is able to participate in non-controlled preferred equity investment.

The investments have allowed the company to reap financial benefits and solid free cash flows that has allowed it to sustain its massive dividend. 

Dividend play

The stock’s dividend yield of more than 6% makes it an ideal play for anyone seeking to replicate the Warren Buffett strategy. The company rewards investors quarterly, making it a perfect play for generating passive income on the side.

Alaris is an established name when it comes to dividends backed by predictable revenue streams from partners. The company has been able to increase its cash flow per share both organically and by main investments.

While the stock is flat for the year, its predictable and stable dividend should excite any investor looking to generate long-term passive income. It’s also relatively undervalued, trading at a price-to-sales multiple of five and a price-to-book multiple of one.

Bottom line

Warren Buffett’s immense wealth was built on acquiring fantastic businesses with immense cash flows. However, his company is now so big that it needs to consume entire businesses to move the needle. 

Alaris Equity Partners buys a minority stake and leaves control with the founding team. Their penchant for preferred stock guarantees recurring and stable cash flows from their investments. That’s why the stock has performed so well over the past year. 

The company’s strong cash flows and 6% dividend yield make it the perfect stock for investors looking to deploy a “lazy Buffett” strategy. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends Alaris Equity Partners Income Trust. Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned.

More on Investing

consider the options
Tech Stocks

Is it Too Late to Buy Shopify Stock?

Shopify is one of the most popular stocks on the market. Is it too late to buy shares?

Read more »

A plant grows from coins.
Bank Stocks

How to Invest in the Bank Bailout News

Highly liquid banks like the Toronto-Dominion Bank are the most viable buys in an environment in which banks are collapsing.

Read more »

Tech Stocks

2 Best Canadian Stocks Under $10 to Buy Now

Cheap TSX stocks such as Payfare and StorageVault are trading under $10. Both these stocks have significant upside potential in…

Read more »

Gas pipelines
Dividend Stocks

3 Stocks for High-Yield Income Each Month

Are you seeking passive income? Consider investing in these high-yield TSX dividend stocks now.

Read more »

edit Colleagues chat over ketchup chips
Dividend Stocks

2 Dividend Stocks for Beginner Investors in March 2023

Are you a new investor looking for great dividend stocks to buy? Here are two top picks!

Read more »

Choice of fashion clothes of different colors on wooden hangers
Investing

1 of Canada’s Better Growth Stocks Just Went on Sale

ATZ stock has taken a 33% hit to the chin, making it a top growth pick to buy as Fed…

Read more »

Growth from coins
Investing

My Top TSX Growth Stock for April 2023

Park Lawn Corporation (TSX:PLC) is a TSX growth stock I’m still bullish on, as we look ahead to April 2023.

Read more »

edit Businessman using calculator next to laptop
Tech Stocks

Better Buy: BlackBerry Stock vs. CrowdStrike

BlackBerry and CrowdStrike are tech stocks part of the cybersecurity segment. Which is a better buy between CRWD stock and…

Read more »