We all have different preferences, even when it comes to investing.
Growth investors seek capital growth. Income investors, on the other hand, prefer to receive dividends.
Proponents of the former argue that growth represents a much more compelling reason for investing as it allows you to compound your wealth quicker.
Investors who advocate income investing emphasize the need to establish a stream of passive income to support themselves during their retirement years.
Each argument has its own merits.
Investing is, after all, an intensely personal endeavour.
But, on rare occasions, you can find a stock that offers both growth and dividends.
A caveat, however.
The best of both worlds doesn’t always come cheap, and you may have to accept some compromise with regards to the growth rate and the dividend yield.
iFast Corporation Limited (SGX: AIY) fulfils both the growth and income criteria.
Here’s why I believe this stock has massive future potential.
Steady AUA growth
Source: iFast presentation slides for 1Q 2020
iFast is a financial technology (fintech) company that runs a platform connecting financial product providers and clients.
The platform allows clients to buy and sell a variety of financial products and securities such as unit trusts, equities and bonds.
As the transactions occur on its platform, the group earns platform fees, trailer fees and wrap fees.
Revenue is closely tied to the assets under administration (AUA) that the group manages.
As can be seen in the graph above, iFast’s AUA has hit S$9.54 billion as of 31 March 2020.
AUA saw a year on year dip of 4.6% from the record-high level of S$10 billion achieved at end-2019.
The decline was due, in part, to the increased volatility in stock markets resulting from the COVID-19 pandemic.
However, the good news is that as of 22 April, the group has regained the S$10 billion milestone.
In a recent interview with Yahoo Singapore, CEO Lim Chung Chun mentioned that the pandemic has failed to dampen investor interest.
iFast saw a record quarterly net inflow of S$590 million in client assets during the first quarter of 2020 (1Q 2020).
Strong balance sheet, quarterly dividends
The group has traditionally maintained a strong balance sheet with minimal debt.
Bank loans were taken up last year to bid for a digital banking licence in Hong Kong.
However, the first batch of licences was offered mainly to mainland China players, with other applicants taking a back seat.
As a result, iFast has paid off the bulk of the loans taken up.
As of 31 March 2020, the group had cash and other investments of S$44.4 million, while bank loans stood at just S$3.8 million.
Thankfully, for income investors, iFast does pay dividends.
In fact, the group has paid dividends quarterly since it got listed in December 2014.
For 2019, iFast paid a quarterly dividend of S$0.0075 per quarter for the first three quarters, and S$0.009 for the final quarter, for a total of S$0.0315 for the full-year.
At the last traded price of S$1.65, this translates to a trailing 12-month dividend yield of 1.9%.
Gunning for a digital wholesale bank licence
The Monetary Authority of Singapore (MAS) had announced, last year, that it was inviting applicants to bid for five digital banking licences.
This move was a step forward in liberalising the banking industry, and a total of two digital full bank (DFB) licences and three digital wholesale banking (DWB) licences were up for grabs.
At end-December last year, iFast had put in a bid for a DWB along with its two Chinese partners Yillion Group and Hande Group.
The timeline for the award of the digital bank licences was pushed back till the end of 2020 due to COVID-19.
In mid-June, iFast announced that it was one of 14 applicants that met the eligibility criteria to progress to the next stage of assessment for the DWB.
Get Smart: Lots of latent potential
The wealth management industry in Asia continues to grow as countries modernise and people become wealthier.
Though the pandemic is throwing a temporary spanner in the works, the long-term trend remains intact as more people turn to digital and online solutions to invest and grow their nest eggs.
iFast is well-positioned to capture a slice of that growth as it has a strong reputation and track record that investors trust.
Granted, there are many competitors in the fintech space as everyone wants a piece of this lucrative pie.
But I believe iFast should be able to grow alongside its competitors as the pie is, after all, growing larger.
Investors can indeed enjoy the best of both worlds — a dividend yield of around ~2% and steady, consistent growth in future.
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Disclaimer: Royston Yang owns shares in iFast Corporation Limited.
