Dividend stocks can be an excellent source of passive income for retirees. But not all dividend stocks are created equal. Some companies pay out modest dividend yields, while others have lofty payouts that look like screaming buys for income-minded investors.

Artisan Partners Asset Management (APAM -1.91%) is one company that pays investors a juicy dividend yielding more than 9% based on future earnings estimates. The investment manager is committed to returning most of its earnings to its shareholders and has historically delivered fat payouts. Here's why Artisan Partners can pay such a high dividend -- and what you need to know before buying.

Artisan Partners uses niche strategies that beat the market

Artisan Partners is a Milwaukee-based boutique asset manager. The company manages money for investors and offers 25 different funds including equities, high-yield investments, emerging markets, corporate credit, and so on. 

It's a relatively small player in the asset management industry, with $120.6 billion in assets under management (AUM) as of Sept. 31. To put this into perspective, top asset managers Vanguard and BlackRock each have about $8 trillion in AUM, or roughly 66 times more than Artisan Partners. 

While Artisan Partners' small size might seem detrimental, it actually works in the company's favor. That's because the asset manager has the agility and flexibility to pursue investment strategies that more-prominent players can't.

Large asset managers with vast amounts of capital create countless funds on a broad basis, while Artisan Partners can focus on niche strategies and outperform the market. The results are impressive: 24 of 25 Artisan funds have beaten their benchmark since their inception. 

Here's why Artisan Partners pays out such a high dividend yield

In the past year, Artisan Partners has paid out $2.95 in regular dividends, giving it a yield of 8.6%. The reason it is so high is because of management's commitment to paying out most of its earnings to shareholders. The goal is to reward investors with a dividend equal to about 80% of its quarterly income. 

The company's primary source of revenue is the fees it collects on its AUM, called the expense ratio. That ratio measures how much of a fund's assets are used for administration and other expenses. Its fund expense ratios range from 0.80% to 4.84%, depending on the investment strategy.

While expense ratios across the industry have generally declined, Artisan is able to rake in larger fees than many asset managers because of its history of outperformance. Its high fees mean that even when market conditions are poor, the company still has a steady revenue stream, making the dividend pretty reliable.

Market declines have resulted in AUM shrinking

Artisan Partners looks to maintain its agile nature and, unlike bigger asset managers, doesn't chase investor inflows. Instead, it tries to create value and boost its AUM through its investment performance, which increases its fees collected as a result.

That didn't happen in last year's bear market, and Artisan Partners's AUM decreased 31% from the end of 2021 through the third quarter. This caused revenue to decline 16% from last year while diluted earnings per share (EPS) fell 44%. The shares, in turn, declined 25% in the past year.

Much of the AUM decline can be attributed to volatility in the market resulting in lower equity and bond prices, not from outflows from its funds. This is a positive sign because it means its investors are staying the course and keeping with the asset manager despite weakness across most asset classes. When markets do eventually rebound, the company will likely see its AUM (and thus its fees) grow. 

A solid high-yield income stock, if you don't mind the fluctuations

Artisan Partners has done an excellent job delivering returns to investors for years. The company's investment funds have earned it a premium above competitors, which is why it can command higher fees. These high fees, coupled with management's commitment to paying out so much of its earnings, have resulted in a solid income stock for investors.

But investors shouldn't expect the payouts to stay consistent. Because its dividend relies on earnings, the payment can fluctuate dramatically yearly. For example, in 2021, it paid out $4.23 per share in dividends (including special dividends); in 2022, it paid out $3.67. While the dividend varies, Artisan Partners' commitment to paying out most of its earnings to shareholders makes this stock a solid pick for income-minded investors.