The S&P/ASX 200 Index (ASX: XJO) stock Pinnacle Investment Management Group Ltd (ASX: PNI) could be a smart buy to achieve considerable monthly passive income as dividends.
Just to be clear, the business doesn't actually pay a dividend every single month. But, investors can use the annual dividend payment and then split that into 12 equal monthly amounts.
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What does Pinnacle do?
Pinnacle is an investment business that has a growing "family" of investment management businesses (affiliates). The ASX 200 stock has stakes in its affiliates, and provides "seed funding, global institutional and retail distribution, and industrial grade middle office and infrastructure services".
Some of the businesses that it's involved with include Aikya, Antipodes, Coolabah, Firetrail, Five V, Hyperion, Langdon, Long Wave, Metrics, Plato, Solaris, and Spheria.
The company benefits from the funds under management (FUM) growth of the underlying businesses, and every so often it invests in a new fund manager which opens up a new growth avenue.
Monthly passive income goal
To create $1,000 of monthly income, we're talking about $12,000 of annual income from the ASX 200 stock.
Commsec numbers suggest that Pinnacle could pay an annual dividend per share of 31.2 cents in FY23. That means investors would need to own 38,462 Pinnacle shares to get $12,000 of annual income in cash, excluding the franking credits.
To buy that many Pinnacle shares, it would currently cost around $340,000. That's a big investment.
But FY24 isn't far away, so let's use the projected numbers for the upcoming financial year.
According to Commsec, Pinnacle is projected to pay an annual dividend per share of 35.9 cents per share in FY24. That would mean that we'd only need to buy 33,427 Pinnacle shares. This would be a total cost of around $295,000, which is clearly a fair bit less expensive, but still a hefty investment.
However, the business could continue to grow its dividend in the coming years.
What could drive the Pinnacle passive income higher?
Pinnacle's earnings have fallen in the short term as the company's investment managers suffered from falling asset prices and limited performance fee revenue.
However, FUM could return to growth if asset prices stop falling and go back to long-term growth. FUM could also rise if investors start allocating money to fund managers again. Those existing fund managers could also launch new funds and we could also see Pinnacle invest in new fund managers.
I think the future looks very bright for this ASX 200 stock and I believe the next two years look promising for the business and the passive income it could generate.
