I’m wary of the big banking companies listed on the stock because of their cyclicality. Lumbering giants such as Lloyds Banking Group strike me as having little potential to grow and lots of downside risk for shareholders right now.
However, within the wider financial sector, I reckon fast-growing and big-dividend-paying Tatton Asset Management (LSE: TAM) looks like an attractive proposition and I’m tempted to buy some of the firm’s shares.
Impressive trading record
The company arrived on the stock market around two years ago, raising almost £52m via an institutional placing in the process. From that well-financed beginning on the public markets, Tatton has been winning business at a decent rate.
The firm earns its living providing services to directly authorised financial advisers in the UK, such as on-platform discretionary fund management, regulatory, compliance and business consulting services, and a “whole of market” mortgage provision. In other words, financial adviser outfits do what they do best – sell, and then they turn to the likes of Tatton as a way of outsourcing the execution of the service.
Things have been going well. During the firm’s two years of public life, revenue has moved more than 40% higher and earnings have shot up around 190%. The momentum continues with today’s full-year figures, which reveal that assets under management rose almost 25% compared to last year. The directors expressed their satisfaction and confidence in the outlook by pushing up the total dividend for the year by just over 27%.
Today’s share price close to 207p puts the forward-looking dividend yield at just over 4.1% for the trading year to March 2020. I think that yield is the key attraction of the share because over two years, the dividend will have grown by around 30%. I think it’s rare to find such a cracking rate of dividend growth alongside a high yield available right now and if the firm keeps up its rate of expansion, shareholders could be well rewarded in the future.
Growing fast
During the period, the number of member firms using Tatton grew by just over 30% and the number of accounts grew by almost 20%. Among other highlights, the firm won investment mandates from Tenet and Frenkel Topping during the year, as well as making strong gains in the mortgage and consulting businesses.
Chief executive Paul Hogarth said in the report that the investment mandate wins “show how compelling our investment proposition is to the wider market.” He explained that Tatton offers “a simple, lean operating model” that gives financial advisers and their clients “the best investment management products at a sector leading price point.”
Looking at today’s figures and the recent financial history of the firm, it’s hard to argue that Tatton’s strategy isn’t working. It seems to me that the financial advisor sector is embracing the company’s service, and I’m tempted to pick up a few of the firm’s shares to hold and see what happens.
