This Canadian Dividend Stock Yields 7% With Plenty of Potential Upside

Sometimes I wonder why more Canadians aren’t talking about Alaris Equity Partners. Here’s a company that’s quietly grown its footprint, posted strong distributable cash flow, and kept distributions healthy, all while the big asset managers steal the spotlight.

In my opinion, Alaris Equity Partners stock remains a buy for investors not only seeking income, but a steady compounder on the TSX.

The numbers don’t lie. Alaris put $249 million to work in 2024 across new deals, and distributable cash flow jumped 42 percent year-over-year. However, with some uncertainty on the rise in the US economy, the stock remains weighed down.

These kind of results aren’t easy to find, especially with a 7 percent yield that actually seems covered and sustainable.

If you’re weighing whether this company belongs in your portfolio, let’s get into the details behind these headline results and examine where the risks, and real rewards, might be.

$249M Invested in 2024, But Can New Deals Sustain Future Distributions?

Alaris Equity Partners didn’t just dip their toes in the water last year, they made a huge splash by investing $139 million in 2024, plus an additional $118 million after year-end.

That brings total capital deployed to $249 million, which stands out as well above their five-year average.

Investment Type	Amount (CAD)
New partners (2024)	$160 million
Follow-on to existing partners	$89 million
Total invested (2024 & post-year end)	$249 million

This surge in capital deployment means Alaris is leaning into more deals and, by extension, new sources of cash flow. Increasing investment rapidly can be a great way to boost partner distribution revenue, and it translated into 19% year-over-year growth in total revenue for 2024.

Distributions to unitholders reached $194.2 million, with a common cash yield of 20% on the equity portfolio.

But, I’m a bit cautious when companies ramp up investments faster than they have historically. While more new deals mean potential for higher dividends for you, it also means more execution risk.

Not every new partner will deliver as hoped, and allocating so much capital quickly can stretch resources thin if not carefully managed.

At the same time, Alaris’ focus on U.S. service businesses, which are 90% of its investments, does shield them a bit from cross-border tariff risks and a weakening Canadian dollar. This is a Canadian listed stock, but it is no question a US pure-play.

Still, aggressive investing cycles can expose an income trust to downturns if too many partners stumble. So investors need go be keeping an eye on this.

Record Distributable Cash Flow. One-Off or a Trend?

Alaris Equity Partners just posted net distributable cash flow of $130.4 million for 2024, a jump of 42% year-over-year. That kind of growth is certainly going to put it on investors radars.

What’s behind such a big leap? The primary drivers were lower cash taxes, collection of deferred distributions from struggling partners, and strong performance from several of its other partners.

Alaris also benefited from earlier follow-on and new investments, which boosted recurring income. A stronger US dollar padded results even further, since as mentioned, about 90% of revenue and assets now come from south of the border.

Factor	Impact on 2024 Results
Lower cash taxes	Increased cash flow
Deferred distributions paid	Boosted revenue
New/follow-on investments	Stable income growth
Stronger US dollar	Added tailwind

But is this level of growth sustainable? Some caution is needed. Deferred distributions aren’t something Alaris can bank on year after year. In fact, you’d rather not see them at all. Because a lot of its partners are heavily exposed to the US economy, many of them will be cyclical.

While the foundation, that being expanding investments, strong partner performance, and a conservative 48% payout ratio, looks promising, not all of these gains are repeatable. If management can keep up investment activity and maintain this momentum from its partners, higher distributable cash flow could stick around.

But I wouldn’t expect another 40% leap next yea. The good news? It doesn’t need to grow at this pace to be a solid investment.

How Growing AUM Shapes Alaris’s Future

Alaris’s latest move into asset management is catching my attention for good reason. By landing its second asset-management transaction back in December of last year, this time with a substantial US$120 million investment from an outside party, Alaris lifted its assets under management (AUM) to roughly C$700 million.

Add that to its own invested capital, and you’re looking at over C$2.2 billion on the books. Here’s why that matters: growing AUM opens up new fee income streams that go beyond the usual preferred share distributions.

Alaris not only manages its own capital in Ohana Growth Partners, but now also earns an annual management fee and potential carried interest on capital from independent investors. This is real, recurring revenue, not just a one-time pop.

From my perspective, management fees and the chance for performance payouts improve Alaris’s business mix, making cash flows a bit more steady. That said, I’m watching closely to see if chasing more managed assets risks distracting Alaris from its proven model of direct equity stakes in private firms.

The new structure also gives Alaris a controlling interest in Ohana, keeping them at the centre of decision-making. That’s important because some asset managers lose operational control once third-party money gets involved.

Here, Alaris still calls the shots, which should help keep the business aligned with unitholder interests. For investors seeking Canadian dividend exposure on the TSX, this kind of fee-driven scalability can be a plus.

Still, I wouldn’t ignore the risk of shifting too far into being an asset manager and away from the steady, predictable returns that made Alaris attractive in the first place. For now, though, the expansion seems to add an interesting, and potentially lucrative, layer to their income streams.

48% Coverage Ratio and 7% Yield. Room to Grow?

When I look at Alaris Equity Partners’ payout strategy, the first thing that stands out is the coverage ratio, just under 48%. To me, that’s a green flag, especially for a company yielding 7%. It is rare to find a high yielder like this with a sustainable payout ratio.

This means Alaris pays out less than half of its available cash, keeping a sizeable margin for safety and reinvestment. That discipline matters, especially when a lot of income focused investors own this company.

With distributions at approximately 6.4% of book value, unitholders pocket significantly more yield than the average Canadian dividend stock. That kind of cash flow has real appeal, especially when the Bank of Canada’s overnight rate still hovers well below these returns. Of course you are taking on equity risk, but its attractive nonetheless.

The real story is what Alaris does with what they don’t pay out. A sub-50% payout ratio means management can reinvest retained cash.

This sets the table for growth, new deals, and flexibility when private markets get volatile. I see this as a sign that the trust isn’t just reaching for high yields to chase investor attention; they’re prioritizing capital retention and long-term stability.

It’s refreshing to see a Canadian income name with this balance. Too many yield plays stretch themselves thin, but Alaris looks content to keep some powder dry on the balance sheet.

Is Alaris Leveraged for Opportunity or Risk?

Alaris just wrapped up a C$92 million convertible debenture issue at 6.5% interest, maturing in 2030.

This isn’t a small bite. The raise first paid down bank debt, but management made it clear the credit lines can be redrawn for new partner investments.

I see two sides to this approach. On one hand, locking in financing at 6.5% for five years provides rate certainty, which feels wise given the current macro environment. However, 6.5% certainly isn’t cheap.

Alaris also keeps some dry powder for opportunities, which is key if you want to react fast when a good private company comes knocking. But I have to question how much debt is too much.

With more convertible debentures in the mix, the trust now faces higher interest commitments, stacking up alongside the distributions paid to us as unitholders.

Debt Tool	Amount	Interest Rate	Maturity	Use of Proceeds
Convertible Debenture	$92M	6.5%	2030	Repay debt, new deals
Senior Debt Facility	Variable	Lower	Rolling	Working capital, M&A

Flexibility increases with access to both debentures and revolving debt. But so does risk if investment targets stumble or if acquisition returns fall short.

So is the Company a Buy?

Overall, I think Alaris is a unique opportunity. While many investors would believe the company wont provide much upside in terms of price because of the high yield, I think it has a chance to.

Valuations are discounted because of the uncertainty when it comes to the US economy, and falling rates south of the border could increase the activity among its partners, which will ultimately lead to more cash flow.