Are Netwealth shares a compelling buy for dividends?

Can this fintech stock be a good option for passive income?

| More on:
Woman with $50 notes in her hand thinking, symbolising dividends.

Image source: Getty Images

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

The Netwealth Group Ltd (ASX: NWL) share price has jumped over 50% in the past year, as shown on the chart below. The company has demonstrated its ability to deliver capital growth and dividend income.

The company provides a platform that enables financial intermediaries and clients to invest and manage a wide array of domestic and international products.

Netwealth's offering includes non-custodial administration and reporting services, self-managed superannuation fund (SMSF) administration, managed funds, managed accounts, investor-directed portfolio services, and superannuation products.

The company has achieved earnings growth since it was listed in late 2017, which has enabled excellent dividend growth.

Growing dividends

Netwealth has grown its annual dividend every year since it first started paying one in 2018, which is a commendable record.

The 2023 financial year saw the annual payout increase by 20% to 24 cents per share. The FY23 annual dividend was around double the size of the FY19 payout of 12.1 cents per share.

Netwealth's excellent dividend growth has continued in FY24, with the interim dividend hiked by 27% year over year.

The last two declared dividends come to 27 cents per share, translating to a fully franked dividend yield of 1.3% and a grossed-up dividend yield of 1.9%.

At a time when the Reserve Bank of Australia (RBA) cash rate is above 4%, the Netwealth dividend yield is not particularly appealing, so I wouldn't call Netwealth shares a buy purely for the passive income.

But we should consider other elements of the investment thesis, not just its dividend potential.

Strong operational performance and margins

Netwealth is delivering strongly on growing its core metrics.

The update for the three months to 31 March 2024 showed funds under administration (FUA) had reached $84.7 billion, an increase of $6.7 billion over the quarter. The FUA growth over 12 months was 28.5%.

It reported FUA inflows of $5.2 billion for the three months to March 2024, which was 40.7% higher than the prior corresponding period. The FUA net inflows for the quarter were $2.7 billion, up 62.2% year over year.

Netwealth also reported its funds under management (FUM) reached $19.7 billion at 31 March 2024, an increase of $1.6 billion for the quarter. FUM net inflows for the quarter were $0.6 billion.

This level of FUA and FUM growth can help drive the company's earnings higher because it contributes to revenue growth. As a digital platform business, Netwealth can benefit from operating leverage, leading to profit rising faster than revenue.

Netwealth says it's highly profitable, with a strong earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 47.6% in the HY24 result. It also has "strong cash generation" and a very high level of recurring revenue, resulting in predictable revenue.

The broker UBS currently rates Netwealth as a buy because of the "strong" quarterly FUA and inflow numbers. The broker has a price target of $22.50 on Netwealth shares, implying a possible rise of more than 10% over the next 12 months.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Netwealth Group. The Motley Fool Australia has positions in and has recommended Netwealth Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

A corporate female wearing glasses looks intently at a virtual reality screen with shapes and lights representing Block shares going up today
Technology Shares

The ASX tech stock with 'a significant growth opportunity ahead'

This tech stock has been flying in recent times and a fund manager remains very positive.

Read more »

A man in a blue collared shirt sits at his desk doing a single fist pump as he watches the Appen share price rise on his laptop
Technology Shares

Surely DroneShield shares can't just keep rising?

The gains continue for this counter-drone player.

Read more »

A young woman holds her hand to her mouth in surprise as she reads something on her laptop.
Technology Shares

Should you buy Life360 shares after its latest stunning milestone?

This high flying tech stock could keep rising according to Bell Potter.

Read more »

A young well-dressed couple at a luxury resort celebrate successful life choices.
Technology Shares

Why the 'opportunity is immense' for DroneShield shares: fundie

DroneShield’s 480% one-year share price gains may be just the beginning, according to this top fundie.

Read more »

A man in trendy clothing sits on a bench in a shopping mall looking at his phone with interest and a surprised look on his face.
Technology Shares

3 explosive ASX tech stocks to buy and hold forever

Analysts think very highly of these rapidly growing companies.

Read more »

A group of businesspeople clapping.
Technology Shares

Why Xero could be one the best shares to buy in the Asia-Pacific

Goldman Sachs thinks very highly of this tech stock.

Read more »

a man wearing old fashioned aviator cap and goggles emerges from the top of a cannon pointed towards the sky. He is holding a phone and taking a selfie.
Technology Shares

Up 80% in a year, this ASX All Ords stock is a 'long way short' of its true value

This fund manager is bullish.

Read more »

A smiling woman with a handful of $100 notes, indicating strong dividend payments
Technology Shares

If I'd put $5,000 into DroneShield shares just 1 year ago, here's what I'd have now

How good an investment has this tech company been?

Read more »