In late 2023, a Canadian personal finance column turned its attention to Alaris Equity Partners, a TSX-listed firm whose shares had fallen about a third from their peak while offering an 8.5% yield. The piece sits within an old and recurring question for income investors: when a price falls and a payout rises, is the generosity real or a warning? Alaris's answer lies in a model that exchanges preferred equity for monthly cash flows from smaller North American businesses, leaving owners in control. The column reads its prospects favorably, yet the deeper test, whether those payments survive the
Alaris Equity Partners: Is the 8.5% Yield on TSX:AD.UN a Bargain or a Value Trap?
An 8.5% yield can mean a bargain or a company in trouble
Mark
Why does a piece about one dividend stock deserve attention?
Mimi
Because it frames a real tension. An 8.5% yield can mean a bargain or a company in trouble, and the column says outright that you have to check the fundamentals.
Mark
What does Alaris actually do?
Mimi
It buys preferred equity in smaller North American companies, usually ones with at least $4 million in cash flow, and gets monthly distributions. Owners keep voting control.
Luke
Worth noting those distributions depend on partners' revenues, so they can fluctuate each quarter. The yield isn't fixed.
Mark
The payout ratio is 39%. Is that reassuring?
Mimi
It suggests a cushion. It's the figure for the end of 2022, though.
Luke
Right, and it's one year-end number. The column doesn't show how it looks now, so I'd call it a cushion at a past date, not a guarantee.
Mark
And the 24% analyst upside?
Luke
That's analysts' expectation, not a result. The column doesn't say how many analysts or what they assume. Same for the 2023 sales figure: it's a forecast.
Mimi
So the takeaway is the question stays open: bargain or trap depends on whether payouts hold.
Le Pouls
- A 31% slide from all-time highs has pushed an 8.5% yield into view, prompting the sharp question of whether the payout is a bargain or a trap.
- Alaris's monthly distributions rise and fall with partner companies' top-line sales, so every quarter carries the possibility of a shortfall.
- The firm points to a 39% payout ratio at end-2022 and sales climbing from $100M in 2018 to $190M, with $195M forecast for 2023, as evidence it can keep paying.
- The column is promotional, and the value-trap risk it raises is not resolved; the outcome will be decided by whether distributions hold as partner results shift.
In late 2023, a Canadian personal finance column turned its attention to Alaris Equity Partners, a TSX-listed firm whose shares had fallen about a third from their peak while offering an 8.5% yield. The piece sits within an old and recurring question for income investors: when a price falls and a payout rises, is the generosity real or a warning? Alaris's answer lies in a model that exchanges preferred equity for monthly cash flows from smaller North American businesses, leaving owners in control. The column reads its prospects favorably, yet the deeper test, whether those payments survive the ups and downs of its partners' revenues, remains an open chapter.
A stock trading 31% below its all-time high and paying an 8.5% yield makes income investors look twice, and then look again for the catch. That is the setup of a December 2023 column in The Motley Fool Canada about Alaris Equity Partners, listed on the TSX as AD.UN.
The column begins with a basic point: when prices fall, yields rise, so a beaten-down stock can show an inflated payout. High-yield stocks are often value traps, and the real question is whether the dividend can survive across business cycles.
Alaris recapitalizes lower middle market companies in North America, typically through preferred equity in firms generating at least $4 million in cash flow. In return it receives a monthly distribution, while owners keep voting control and use the capital for growth, acquisitions or buyouts. Because those distributions track each company's sales, they can shift from quarter to quarter.
The column points to a lean operation with EBITDA margins above 80%, more than 20 partners, and a portfolio that is about 90% U.S.-based. Alaris reports $2.2 billion invested across 40 partner companies and more than $1.2 billion in distributions collected. It cites a 39% payout ratio at end-2022, sales growth to $190 million, and a forecast of $195 million for 2023, with the stock trading below eight times forward earnings.
This is favorable opinion commentary, and it does not settle the value-trap question it raises. The thing to watch is whether distributions hold as partner companies' results change.
A stock trading 31% below its all-time high and paying an 8.5% yield is the kind of thing that makes income investors look twice, and then look again for the catch. That is the setup of a December 2023 column in The Motley Fool Canada about Alaris Equity Partners, listed on the TSX as AD.UN.
The column starts from a basic mechanical point: yields and share prices move in opposite directions, so a beaten-down stock can show an inflated payout. It also warns that high-yield stocks are often value traps rather than sound long-term holdings. Its answer is to look at fundamentals, specifically whether the dividend can survive across business cycles.
Alaris recapitalizes up to 85% of the equity in lower middle market companies in North America. It generally invests through preferred equity in businesses generating at least $4 million in cash flow. Deals run between $20 million and $100 million, and in return Alaris receives a monthly cash distribution on its new preferred position. Owners use the money for organic growth, acquisitions, recapitalizations or buyouts. They keep voting control, because Alaris uses non-voting shares and does not ask for board representation.
The distributions are tied to each company's top-line results, so they can change from quarter to quarter. Alaris does not depend on an exit to generate returns. The column describes the strategy as pairing equity-like returns with debt-like protections, and says the existing portfolio produces a baseline cash yield of 13%, with possible further gains from capital appreciation.
The business is lean. The column says EBITDA margins typically exceed 80%, which is what lets Alaris pay out so much. It has more than 20 partners, with historical organic revenue growth between 1% and 6%. Around 90% of its investments are in U.S.-based companies. By sector, business services make up 39% of the portfolio, consumer products 25%, industrials 24% and consumer financial services 12%.
The track record, as presented, runs as follows. Alaris has invested $2.2 billion across 40 partner companies to date. It has collected more than $1.2 billion in distributions and received $850 million of capital through exits or repurchases. Over the last five years it deployed $200 million of gross capital, $130 million of it in 2023.
Sales rose from $100 million in 2018 to $190 million in 2022, and the column says they are forecast to reach $195 million for 2023. At less than eight times forward earnings, it calls the stock cheap relative to its yield. Alaris ended 2022 with a payout ratio of 39%, which the column says leaves room to keep paying if financials weaken. Analysts, it adds, expect the shares to gain 24% over the next 12 months.
This is opinion commentary, and a favorable one. The value-trap question it raises at the outset is not settled by it. Because Alaris payouts depend on its partner companies' revenues, the thing to watch is whether distributions hold as those results shift.
Citations marquantes
Analysts expect the shares to gain 24% over the next 12 months.— The Motley Fool Canada column, citing analysts
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