The ASX dividend stock Pinnacle Investment Management Group Ltd (ASX: PNI) has fallen 30% from its August peak, as the chart below shows.
I think this is a great time to invest in the funds management investment business – its share price can go through significant volatility, so the low points can be pleasing opportunistic times to buy.
This business takes significant stakes in funds management businesses and helps them grow with an offering of several services, as well as enabling the fund manager to focus on investing rather than running a business.
Some of the services that it can provide include seed funds under management (FUM) and working capital, middle office and fund administration, technology, distribution and client services, compliance, finance, legal and more.
It has built up a very impressive portfolio of investments across a range of fund managers, including Hyperion, Plato, Palisade, Resolution Capital, Solaris, Antipodes, Spheria, Firetrial, Metrics, Longwave, Riparian, Coolabah Capital, Aikya, Five V, Langdon, Life Cycle, Pacific Asset Management and VSS.
Aside from the diversified portfolio nature of the business, I think there are a few good reasons to like this ASX dividend stock.
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Good dividend credentials
A lot of quality businesses cut their dividends during 2020 because of the various impacts of COVID-19.
Pinnacle was not one of those businesses – it maintained its payout in FY20. The company has increased its annual dividend every other year going back to 2016 when it started paying a dividend to investors. That's a pleasing record of dividend growth, in my view and speaks of stability considering the volatile nature of share markets and FUM.
The company has worked hard to diversify its portfolio of managers across different asset classes and geographies.
In FY25, the ASX dividend stock increased its payout by 43% to 60 cents per share. At the current Pinnacle share price, that translates into a grossed-up dividend yield of approximately 4.5%, including franking credits.
The forecast on Commsec suggests the annual payout could climb by approximately 10% in FY26, taking the potential grossed-up dividend yield to around 5%, including franking credits.
Earnings growth expected
There are a range of ways that the business could grow earnings in the next few years.
Pinnacle's portfolio of investment managers could organically grow their FUM thanks to rising asset markets. They could also launch new strategies/funds that attract new FUM inflows.
Additionally, Pinnacle could expand its portfolio by investing in new funds management businesses, as it has done regularly in recent years. I'm particularly excited by the potential of the business to add new investments in overseas markets such as Europe and North America.
According to the forecast on Commsec, the Pinnacle share price is valued at 22x FY26's estimated earnings. The projections also suggest the company could grow earnings by another 29% between FY26 and FY28.
Overall, the future looks bright for this ASX dividend stock and this looks like a good time to invest.
