FSZ:CC - For a Shot at $5000 in Annual Passive Income Buy 5814 Shares of This TSX Stock

2023-06-28 20:00:00 ET

Investing in high-yield dividend stocks can help you create a passive stream of dividend income. But you also need to consider the associated risks before investing in dividend stocks. For example, dividend payouts are not guaranteed and can be suspended or cut if company financials deteriorate.

So, you need to identify companies with strong fundamentals and a sustainable yield to ensure dividends aren’t rolled back. Ideally, dividend-paying companies also need to increase cash flows consistently, allowing them to enhance payouts and build shareholder wealth over time.

One high-yield dividend stock you can consider buying in 2023 is Fiera Capital ( TSX:FSZ ) an asset management company. With a yield of 13.4%, FSZ stock should be on the radar of income-seeking investors. Let’s see why.

The bull case for Fiera Capital stock

Valued at a market cap of $650 million, Fiera Capital has close to $165 billion in assets under management (AUM). Similar to other asset managers, Fiera Capital experienced significant outflows in 2022 due to the volatility across financial markets and asset classes. But its Private Markets platform continued to gain momentum ending 2022 with an AUM of $18.2 billion, an increase of 14% year over year.

Fiera Capital aims to build optimized portfolios to deliver on client objectives. It also offers innovative investment strategies tailored to the specific requirements of its clientele.

Despite its underperformance in the last year, Fiera Capital has a payout ratio of less than 80%. In case the equity markets continue to surge higher in the second half of 2023, Fiera Capital should easily outpace Bay Street’s earnings estimates, lowering its payout ratio considerably.

Fiera Capital has increased its base management fees from $485.6 million in 2018 to $603 million in 2022. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) has risen from $137.5 million to $191.8 million, increasing its margin by 280 basis points in this period.

Priced at six times forward earnings , FSZ stock is very cheap and trades at a discount of 25% to consensus price target estimates.

The bear case for Fiera Capital stock

Like any other investment, Fiera Capital carries certain risks. There is a chance for the equity markets to move lower and re-enter bear market territory, especially if threats of an economic recession come true. In this case, investors are likely to liquidate their positions, lowering the AUM of Fiera Capital, which, in turn, will reduce its earnings.

Basically, Fiera Capital’s stock price is tied to the performance of the equity markets. In case it’s AUM contracts, fee-based earnings might fall off a cliff resulting in a dividend cut.

Moreover, Fiera Capital has historically trailed the broader markets. In the last five years, FSZ stock has fallen by 19%, while it has gained 10% since June 2003, after accounting for its dividends.

The Foolish takeaway

For you to earn $5,000 in annual dividends, you need to buy 5,814 shares of Fiera Capital, which will be worth $36,977 today. But investing such a huge sum in a single stock is quite risky. Instead, you need to identify similar other high dividend stocks and diversify your risk in the process.

The post For a Shot at $5,000 in Annual Passive Income, Buy 5,814 Shares of This TSX Stock appeared first on The Motley Fool Canada .

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Fiera Capital. The Motley Fool has a disclosure policy .

2023