One 8%+ yielding growth stock I’m adding to my watchlist

This company has only been public a few months but its eye-catching maiden dividend is well worth investigating.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Separated from Old Mutual only three months ago, wealth management giant Quilter (LSE: QLT) is already richly rewarding investors with a special interim dividend of 12p per share. At today’s share price it represents a whopping 8.8% dividend yield.

Now, this was indeed a ‘special’ dividend representing part of the proceeds from the management buyout of another part of the business, but I do see good potential for the underlying business to continue paying more down-to-earth, but still impressive, dividends.

A big part of this is the high-margin, highly-scalable nature of the wealth management business. In the first half of this year, the business generated revenue of £385m and kicked off £110m in underlying operating profits as margins bumped up to 29%.    

In these same six months, the company attracted £2.2bn in net client fund inflows, which together with investment returns, took its assets under management up to £116.5bn. The fund management industry is a competitive one but with equity markets buoyant, trillions in potential inflows to target, and its own management team now able to focus solely on growing the business, rather than being part of a larger parent company, I expect Quilter has plenty of space to continue expanding.

And thanks to the inherent operational leverage in its business model, there’s also good scope for further improvements to margins. This would mean higher earnings, and thanks to the business’s low capital investment needs, much of these can be returned to shareholders.

In H1 the company’s 5.5p underlying earnings per share, which exclude the aforementioned disposal, increased 25% to 5.5p. For the full year, analysts are estimating EPS of 10.75p rising to 11.5p in 2019 with a dividend payment that year of around 5p.

At today’s share price that would mean a yield of 3.8%. Certainly not the 8.8% yield being generated this year, but to my eyes a very sustainable payout from a company worth following given its prospects for revenue and profit growth.

A picks and shovels option

Another player in the wealth management space that appeals to me is fund services provider JTC (LSE: JTC). Rather than managing money for clients like Quilter, it provides administration services for money managers ranging from private equity groups to ultra-high-net-worth individuals. The company has been public for only a few months, but thanks to increasing regulation, geographic expansion and acquisitions that have broadened the array of services it offers, it has a compelling track record with compound annual revenue growth of 23% over the decade to 2017.

Judging by the company’s interim results released this morning, this growth is far from done. Revenue during the six months to June rose 25.2% to £35.3m thanks to organic growth of 8% and two acquisitions completed last year. The integration of acquisitions and a focus on cost controls led EBITDA margins up from 23.6% to 29.9% during the period as well, meaning the business generated £10.5m in underlying EBITDA.

With an uptick in the value of its potential bidding pipeline and another acquisition completed following the end of June, this growth looks set to continue into H2 as well. At 24 times consensus forward earnings, JTC’s shares are not cheap. But with a strong record of growth, high levels of recurring revenue and less cyclicality than fund managers, I think this business is one to watch closely.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »