Picture supply: Getty Photos
I’ve had my eyes on a FTSE 250 inventory that’s been providing double-digit yields with big restoration potential. Yields of that dimension are sometimes an indication of hassle, and that’s actually the case with troubled asset supervisor Aberdeen Group (LSE: ABDN).
The asset supervisor’s story has been removed from easy since its 2017 merger with Normal Life misfired. The deal, which created one of many UK’s greatest asset managers, bumped into hassle early on. Dropping a £25bn mandate from Lloyds and the daft rebrand to abrdn didn’t assist. The yield rocketed, however largely as a result of the share value was falling slightly than the dividend rising.
The shares are bouncing again
It began to quiet down final 12 months however one factor stopped me from shopping for it. I already had outsized publicity to financials by FTSE 100 names like M&G and Phoenix Group Holdings, which additionally mixed stagnating share costs with supersized yields.
Now the sector is again. M&G and Phoenix are up 30% and 25%, respectively, during the last 12 months. Aberdeen has outpaced them each, rising 34%. With a present buying and selling yield of seven.25%, its complete return may prime 40%. That’s an honest outcome for long-suffering traders, however the shares are nonetheless down 25% over 5 years.
First-half outcomes, revealed on 30 July, have been a blended bag. Adjusted working revenue dipped 2% to £125m and web working revenues fell 6% to £628m. However there was extra constructive information from fund platform Interactive Investor, a latest acquisition, the place income rose 25% to £69m, helped by report buying and selling volumes.
The funding division noticed a modest 3% revenue improve however the advisory division struggled, with income down 35% on increased bills and falling revenues.
Aberdeen’s transformation programme delivered £137m in financial savings to date. It goals for no less than £150m by year-end. Chief government Jason Windsor mentioned progress was on observe however clearly, there’s nonetheless some strategy to go.
Revenue is excessive however not rising
Regardless of that eye-catching yield, the latest dividend share observe report is disappointing. The board slashed it by a 3rd in 2020, from 21.6p to 14.6p, and it’s been frozen for the final 4 years. With the board holding the 2025 interim dividend regular at 7.3p, it appears to be like like one other freeze this 12 months. There are clearly different makes use of for the cash, however traders will wish to see the dividend per share transfer upwards finally.
With rates of interest anticipated to fall, high-yield shares like Aberdeen change into extra engaging. Buying and selling at a 13.36 instances price-to-earnings ratio, the shares stay first rate worth, though not a shocking cut price. It’s price noting that international inventory markets are buying and selling near information excessive proper now. Like each asset supervisor, Aberdeen may take a beating if we get a sell-off within the weeks forward, as some are warning.
So is it a screaming purchase as we speak? I wouldn’t go that far. Aberdeen nonetheless has a lot to show and the shares could idle for a while. However for earnings seekers with endurance and a long-term view, it’s a inventory to contemplate shopping for. I’ve made my selections elsewhere within the sector and can stick to them.
