Investing in high-dividend stocks is not always a good strategy. Generally, a company’s stock price and dividend yield are inversely related. So, if a company offers you a tasty dividend yield, it is essential to analyze whether the stock price is beaten down due to broader market weakness or company-specific fundamentals.
Ideally, you should invest in dividend stocks that enjoy pricing power and generate stable cash flows across market cycles. These companies should also have a sustainable payout ratio, providing them with enough room to reinvest in growth projects, resulting in higher cash flows and dividends.
One beaten-down TSX stock that offers you a yield of more than 10% is Fiera Capital (TSX: FSZ). Valued at $868 million by market cap, Fiera Capital stock trades 44% below all-time highs, increasing its forward yield to 10.2%.
Is Fiera Capital stock a good buy?
Fiera Capital is an asset management company with a widening global presence. Similar to other asset managers, Fiera Capital generates revenue from commissions or fees, which in turn depend on the total assets under management (AUM). It delivers multi-asset solutions across public and private asset classes to institutional and private wealth clients in North America, Europe, and Asia.
Typically, asset managers increase their AUM during bull markets while experiencing outflows when markets turn bearish, making them cyclical in nature. As capital markets recovered last year, Fiera Capital ended with $161.7 billion in assets under management, up from $158.5 billion in 2022.
Despite an uncertain macro environment in 2023, Fiera Capital increased assets under management by $6.4 billion on a sequential basis in Q4 2023. The company attributed capital inflows to strong performance in global equity markets, as 98% of its public market assets exceeded their five-year performance benchmarks.
Driven by an increase in AUM, Fiera Capital reported revenue of $211 million in Q4 2023, up from $184.7 million in the year-ago period. Fiera’s focus on lowering its cost base allowed it to report an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $77.6 million in Q4, up from $52.8 million in the same period last year, improving its margin from 28.6% to 36.8% in the last 12 months.
Fiera Capital emphasized it will focus on distribution and sales in key geographic regions, while entering new markets as it develops business opportunities in 2024.
The private markets business will be a key driver of growth in 2024 and beyond, given that the segment has increased AUM by 11% annually and sales by 21% annually in the last three years. A high-margin segment, private markets accounted for 11% of AUM and 32% of sales for the company in Q4.
Does Fiera Capital have a sustainable dividend payout?
An improvement in profit margins provided Fiera Capital with the flexibility to reduce net debt and strengthen its balance sheet. It also meant the asset manager ended 2023 with free cash flow of $89.2 million, up from $58.9 million in 2022.
Given a quarterly dividend payout of $0.215 per share, Fiera Capital spent roughly $74 million on dividends, indicating a payout ratio of 83%.
Priced at 8.3 times forward earnings, FSZ stock is quite cheap, given its high dividend yield and widening earnings base.
