I’ve gone off the beaten path looking for an undercovered dividend stock that could be a worthy addition to my portfolio.
Liontrust Asset Management (LSE:LIO) looks like a very worthy contender indeed.
It has a yield of 12% and has made no reductions to its dividend payments in 10 years.
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Now, before I get ahead of myself, there’s one big caveat with this investment. Its share price is down over 75% from its all-time high.
However, with a value investor’s mindset, that could spell a further opportunity.
A beaten-down share price means it could rise over time if the financials support its growth.
What does the company do?
Liontrust is an established UK investment management company that allows its fund managers to trade operating according to their specific views and special expertise.
The firm has also made multiple acquisitions.
For example, it bought North Investment Multi Asset team and portfolios in 2013, Alliance Trust Investments in 2017, and Majedie Asset Management in 2022.
These acquisitions diversified Liontrust’s offerings and increased its areas of expertise to better serve its clients.
What I like about the shares
Other than the dividend yield and the low share price, the company has other promising elements.
For example, its revenue has been increasing steadily over time, averaging 14% growth over the last three years.
In addition, it has a strong balance sheet.
As of its last annual report, it had £131m in cash and only £4m in debt. If it can keep that up (which isn’t guaranteed, of course), I’d sleep well at night holding Liontrust shares.
Also, there’s further evidence it could be undervalued. Its price-to-earnings ratio based on future estimates is just 8.
So, the shares look cheap and stable to me, with the potential to grow and a hefty dividend yield. What’s not to love?
A look at the risks
As with all investments, buying Liontrust shares could mean I face considerable problems.
For one, its net margin is an uncompetitive 7.5% at the moment. If it fails to improve that, the shares might not grow substantially over time.
In addition, the company is currently paying 2.7 times its earnings in dividends. Arguably, that’s not sustainable for much longer.
That’s why I won’t be making this investment solely based on the passive income. There are plenty of other reasons why the shares look attractive to me that are likely to still stand if the dividend returns to a more ordinary level.
I think I’m sold
This is an unusual situation with a company paying a remarkably high dividend. It’s clearly not going to last forever.
However, with such a low share price and strong financials, the stock is worth me owning, even putting the yield aside, in my opinion.
That’s why I’ll be looking at buying these shares in February. They’re too good for me to pass up unless something even more appetising grabs my attention.
