Down 13%, This Magnificent Dividend Stock Is a Screaming Buy

Sometimes, a moderately discounted, safe dividend stock is better than heavily discounted stock, offering an unsustainably high yield.

Adam Othman

Adam is a value investor who is always on the hunt for fantastic undervalued companies that he can share with Motley Fool readers. He follows Warren Buffett and Charlie Munger's investment advice and has completed the Canadian Securities Course. When he's not investing, Adam can usually be found traveling or skiing.

Published December 13, 2024 9:00 pm EST

Stock prices and dividends, or more accurately, dividend yields, have a simple inverse relationship. The more the prices go down, the higher the yield goes, assuming there are no other factors in the equation, like the company raising or slashing its dividends. So, heavily discounted dividend stocks seem naturally appealing to investors as they offer relatively higher yields.

But it’s not always the case. Sometimes, even a modestly discounted stock like Montreal-based Fiera Capital (TSX: FSZ), which is trading at 13.6% below its yearly peak, might be a screaming buy for its generous dividends.

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The company

With a market capitalization of $835 million, Fiera Capital is counted among the small-cap stocks in Canada.

However, this number doesn’t reflect the company’s accurate scale of operations. This independent asset management firm has an impressive $165.5 billion worth of assets under management. Most of these assets are in private markets in the form of equities and fixed income. About 12% of the assets are in the private market.

The bulk of its operations are in Canada (about 64%) of the business mix, roughly 20% in the U.S., and the rest is in other markets. The company has been growing its assets under management quite steadily. The assets are invested in different markets and market segments, like Canadian equity, U.S. equity, and an international equity pool.

Considering the growth of its private and public sector investments in the last quarter, it’s easy to see that the company is managing its investors’ money well. This indicates that much of the stock’s recent growth comes from organic catalysts, like its performance.

The dividends

The company has been paying dividends for several years now. It used to grow its dividends regularly, then paused in the post-pandemic market, but has recently started growing the payouts again. It pays a dividend of $0.2160 per share per quarter, a 10-cent increase from its last quarterly dividend.

The payout ratio history is not as impressive. The ratio has remained above 100% for most of the past decade. Still, the fact that the company has managed to sustain and even grow its dividends despite that is an endorsement of its dividend sustainability. The current payout ratio is relatively healthy, considering the payout history.

Lastly, the most compelling aspect of its dividends is the yield. At 9.1%, the stock is offering one of the highest yields in the financial sector right now. It’s enough to help you generate a $150 monthly income with $20,000 invested in the company.

Foolish takeaway

The current slump might begin a bear market phase for the company or simply a temporary dip. If it’s the former, you may consider waiting out a bit because the yield can easily reach double digits.