Investing in quality dividend stocks that offer a tasty yield allows shareholders to begin a low-cost passive income stream. One such TSX stock is Alaris Equity Partners Income (TSX:AD.UN), which pays shareholders an annual dividend of $1.36, indicating a forward yield of 7.4%.
Alaris Equity Partners operates as an alternative financing provider to profitable private companies across North America. It structures investments as preferred equity or debt arrangements that generate ongoing income through royalties or distributions. These payments are calculated as a percentage of the partner company’s top-line revenue or gross profit.
Alaris offers businesses access to capital while preserving ownership control, a compelling alternative to traditional financing. It means that partner companies can fund growth, acquisitions, or other strategic initiatives without ceding operational control.
Alaris focuses on companies with proven management teams, strong fundamentals, and established track records. It actively manages a diversified portfolio while taking a disciplined approach to new investments.
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Is this TSX dividend stock a good buy right now?
Alaris Equity’s Q2 results showcase why this alternative financing company presents an attractive opportunity for income-focused investors seeking diversified exposure to growing private businesses.
CEO Steve King noted this may be the strongest period in Alaris’s 20-plus year history, with many portfolio companies delivering over 20% year-over-year earnings growth. This exceptional performance across nine partners drove $25.5 million in net unrealized fair value gains and 21% revenue growth to $34.5 million in the June quarter, demonstrating the quality of Alaris’s investment selection process.
The portfolio’s health metrics remain robust with a weighted average earnings coverage ratio of 1.5 times, while 13 of 20 partners maintained minimal debt defined as less than one times senior debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization).
Run rate revenue reached $183 million, up 12.5% year-over-year, providing a stable foundation for distributions. Moreover, a payout ratio of less than 65% offers sustainable income with room for growth.
Alaris started common equity investments six years ago and expects meaningful redemptions over the next 12–36 months based on typical holding periods. These exits could generate substantial returns, as King emphasized the market isn’t properly valuing their common equity positions, which could deliver significant gains beyond preferred returns.
With US$200 million in available credit capacity and multiple deals in progress, Alaris is well-positioned for continued growth. It deployed $154 million year-to-date, including follow-on investments with existing partners like Shipyard, demonstrating disciplined capital allocation and strong deal flow.
Portfolio companies span multiple industries and geographies, with standout performers like Sono Bello achieving record profitability from GLP-1-related procedures and Ohana’s Planet Fitness franchises benefiting from successful price increases. This diversification reduces concentration risk while capturing growth across different economic sectors.
Is the TSX dividend stock undervalued?
Analysts tracking Alaris stock forecast revenue to rise from $155 million in 2024 to $183 million in 2026. In this period, free cash flow is expected to increase from $59.4 million to $90.8 million. Given its outstanding share account, the annual dividend expense for the TSX stock is around $60 million, which is sustainable.
Analysts remain bullish and expect the TSX dividend stock to gain over 37% from current levels. If we adjust for dividends, cumulative returns could be closer to 45%.
