Risky high-yield stocks can indeed be a double-edged sword. But with the right strategy, these can offer significant rewards. For instance, a study from the Journal of Finance found that over a 10-year period, investors who strategically picked high-yield stocks with strong fundamentals saw returns nearly 4% higher annually than those who stuck with safer, low-yield options. This suggests that while these stocks come with more volatility, the potential for higher returns is real, especially for those who can weather the ups and downs. So today, let’s look at some higher yield, and yes, riskier, dividend stocks to keep your eye on.
Fiera Capital
Investing in Fiera Capital (TSX: FSZ) comes with both enticing rewards and notable risks. Especially when you consider its impressive dividend yield of over 11%. This high yield is one of the stock’s main attractions, supported by the company’s steady revenue stream from its diversified asset management portfolio. In its recent earnings report, Fiera Capital showed a 3.1% year-over-year increase in revenue. This was driven primarily by its Private Markets segment. Despite a slight decrease in assets under management (AUM), the company’s ability to generate significant cash flow has been crucial in maintaining this robust dividend. This makes it a potentially attractive option for income-focused investors.
However, this appealing dividend comes with some cautionary notes. Fiera Capital’s earnings have faced pressure. The stock had a 53.3% decline in quarterly earnings growth year-over-year, reflecting challenges such as net outflows and higher operating costs. The company’s high payout ratio, which exceeds 159%, suggests that sustaining such a high dividend might be challenging if earnings don’t improve.
Furthermore, with a significant debt load and fluctuating AUM, there’s a risk that the company may need to adjust its dividend strategy. Especially if financial performance continues to be volatile. Investors should weigh these factors carefully, balancing the appeal of the high yield with the underlying financial challenges.
Bridgemarq
Investing in Bridgemarq Real Estate Services (TSX: BRE) offers a mix of risks and potential rewards. This makes it an intriguing option for those interested in the Canadian real estate sector. On the positive side, Bridgemarq’s recent acquisition of real estate brokerages from Brookfield has significantly boosted its revenue. This reached $110.1 million in the second quarter of 2024, a substantial increase from $12.8 million in the same period the previous year.
This growth reflects not only the added revenue streams from the acquired businesses but also the improving market conditions in the Canadian real estate sector. Additionally, Bridgemarq’s dividend yield of over 10% is highly attractive, supported by the company’s solid cash flow generation. The monthly dividend payments offer investors a steady income stream, making BRE an appealing choice for income-focused portfolios.
However, potential investors should also be mindful of the risks involved. While the high dividend yield is appealing, it comes with a high payout ratio of over 118%. This could pressure the company if earnings don’t continue to grow. Moreover, the real estate market is inherently cyclical, and any downturn could impact Bridgemarq’s revenue and profitability. The company’s financials also reveal a substantial debt load, which adds another layer of risk – especially in a rising interest rate environment. Investors should weigh these factors carefully, balancing the potential for high income against the risks associated with market volatility and financial leverage.
