This week’s top dividend buy: K2 Asset Management Holdings Ltd

Can you beat this solid company’s massive 13% dividend yield?

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K2 Asset Management Holdings Ltd (ASX: KAM) certainly stands out from the crowd when it comes to top dividend-yielding ASX listed companies. That’s partly because sorting high dividend companies involves sifting through the rubble of broken mining services companies, Forge Group (ASX: FGE) anyone? However K2 Asset Management stands as a fairly solid company with growth potential and wise management.

The company

K2 Asset Management is a funds management company which sells through wealth providers including AMP Limited (ASX: AMP). The company specialises in equity investment across major global markets, but keeps things simple and stays away from risk adding factors like gearing and derivatives.

The company had an outstanding year in 2013 on the back of rising share markets and the first half of FY14 has built on this. Revenues to 31 December 2013 jumped from $12.3 million to $34 million and after tax profit was up 220% to $14.9 million.

The dividend

The strong improvement in financial results allowed the company to announce big increases to the payout to shareholders.

Last year the company paid out a final dividend of 4 cents per share (cps), while the outstanding first-half FY14 result delivered an interim dividend of 6cps. At the current share price of $0.72, the total dividend of 10cps gives a yield of 13.8%.

Is it sustainable?

K2’s revenues come from management and performance fees and are highly dependent on the fluctuations of share markets. Despite the company’s good record of beating the market (the company’s K2 Australia fund returned 26.1% for FY13, beating the index performance of 20.7%), falls or even slowdowns in equities will likely impact company performance going forward.

K2 is currently cautious on equity valuations, noting earlier this month that it is reducing its net equity exposure from 97% in 2013 to 80%. This is still above the company’s 14-year average of 70%.

Foolish takeaway

K2 Asset Management Holdings is a well-managed company with solid performance and a sizeable dividend. This dividend will be subject to the ups and downs of the market and should not be relied upon for a regular income, however the company could definitely be considered for its long-term growth potential.

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Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned.

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