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Income stocks are a fantastic way to earn some extra cash without having to do any work. And luckily for British investors, there’s a plethora of dividend-paying companies to choose from.
That list includes Impax Asset Management Group (LSE:IPX), which currently offers one of the biggest yields on the London Stock Exchange at 13.9%! But is this payout too good to be true?
Dedicated investing strategies
While Impax isn’t a household name, the company plays a leading role within the institutional investing industry as one of the largest sustainability managers in London. The group specialises in pursuing both private and public strategies with a particular emphasis on environmental and climate opportunities across global equities.
Like other asset managers, the firm makes the bulk of its money from management and performance fees on the assets under its umbrella. And with a focus on ESG, the group has been enjoying some structural tailwinds.
After all, government and regulatory policy surrounding decarbonisation and resource efficiency has created ample investing opportunities for specialist managers like Impax over the last decade. Sadly, since the 2022 US stock market correction, ESG strategies have lost a bit of momentum.
With renewable energy solutions struggling in a higher interest rate environment, fossil fuels are making a bit of a comeback. And while ESG remains popular among certain groups of investors, other multi-asset management firms have begun building their own solutions, making it harder for Impax to attract new client funds.
The result? Since its 2021 peak, the stock’s down over 85%.
A high-yield opportunity?
Losing 85% of its market-cap is an understandably painful loss, especially for investors who held on. However, despite the challenges, management’s maintained its dividend policy of paying out 55% of underlying after-tax profits. And combining continued dividends with a falling share price is why the yield’s now in double-digit territory.
So is this secretly a fantastic income stock to buy? That depends. For investors expecting a near-14% yield, they’re likely to be disappointed.
Tight coverage from lower fee income means dividends are likely to be cut. In fact, shareholders have already seen a reduction in the interim payout from 4.7p to 4p year on year.
Looking ahead, the current consensus indicates dividends to drop from 26.9p to 12.6p – by almost half. And assuming that the forecast is accurate, it means the yield’s more realistically closer to 6.4%.
Having said that, even at 6.4% this income stock still offers a meaningful dividend stream. After all, the market average is around 4%. And as we approach a lower interest rate environment again, Impax could enjoy the tailwinds of an upcycle, expanding its fees, and supporting a recovery of dividend payments over the long run.
Management’s recent announcement of a £10m buyback programme certainly indicates confidence in its long-term potential. So this may be one to watch moving forward as more signs of earnings recovery emerge. For now, I’m looking elsewhere for high-yield passive income opportunities.
