The Tax-Free Savings Account (TSFA) is a flexible registered account that was launched in 2009. Canadian residents can hold a variety of qualified investments in the TFSA, including bonds, stocks, exchange-traded funds, and mutual funds. Moreover, any returns generated from these qualified investments in the TFSA are exempt from Canada Revenue Agency taxes.
Due to the TFSA’s tax-sheltered status, Canadians can consider holding quality dividend stocks in the account to benefit from a steady stream of passive income and long-term capital gains. So, let’s see how to transform your TFSA into a cash-generating machine with just $10,000 by investing in this TSX dividend stock.
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Hold this TSX stock in a TFSA right now
Valued at a market cap of $900 million, Alaris Equity Partners (TSX: AD.UN) is an alternative capital provider that invests primarily in North American lower-middle market companies through preferred equity instruments. In 2024, it reported a 42% year-over-year increase in net distributable cash flow, reaching $130.4 million or $2.87 per unit. This resulted in a payout ratio of just 48%, significantly below the company’s target of 65%.
Alaris Equity Partners reported a strong finish to 2024. Its partner distribution and transaction fee revenue stood at $46.9 million in the fourth quarter (Q4), exceeding previous guidance of $38.9 million and the prior year’s $41.9 million. Its net book value increased to $24.22 per unit, representing a 21% total return on book value for the year when combined with dividends.
“In Canadian dollars, we now manage almost $1.6 billion of investments, of which more than a third have full common equity upside,” said Chief Executive Officer Steve King during the earnings call. “We also get a portion of the eventual profits of another $750 million of third-party capital that we manage.”
With its strong cash position, Alaris is pivoting toward share repurchases rather than dividend increases. Management has budgeted approximately $25 million for stock buybacks in 2025 and signalled the potential for additional special buyback programs following any significant partner redemptions.
King addressed potential impacts from U.S. tariffs and government spending cuts, noting the company’s resilient business model. Approximately 90% of Alaris’s investments are in U.S.-based service businesses that don’t rely on imported or exported goods, limiting exposure to trade tensions. Only one of its 20 partners, FMP (a human resources consulting company), could experience some disruption from government reforms.
Looking ahead to 2025, Alaris anticipates $42.5 million in Q1 revenue and has increased its twelve-month outlook to $187 million, up from $171 million. Alaris expects positive resets from 10 partners, negative resets from two, and seven partners with no resets this year.
King also highlighted an expanding pipeline of potential transactions, noting that relationships with large asset management companies will allow Alaris to pursue more significant deals requiring more common equity than historically possible with just public capital. These co-investment partnerships will be strategically crucial for accelerating growth while providing shareholders additional optionality through third-party capital returns.
The Foolish takeaway
An investment of $10,000 in Alaris will help you purchase 508 company shares. It means your annual dividend payout will be close to $691, indicating a yield of 6.9%. The TSX stock has returned 164% to shareholders in the last five years. However, if we adjust for dividend reinvestments, cumulative returns are closer to 300%.
