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Should I buy Abrdn shares for the big dividend?

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Investing in dividend stocks can be a good way to generate passive income. Here in the UK, there are many dividend-paying shares that offer yields of 5% or higher.

One UK dividend stock that recently caught my eye is Abrdn (LSE: ABDN). Currently, it offers a prospective dividend yield of nearly 6%. Is this a stock I should consider for my own portfolio? Let’s take a look.

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Abrdn: a good dividend stock?

Whenever I’m analyzing a dividend stock, one of the first things to look for is the quality of the underlying business. I like to invest in high-quality businesses that are industry leaders with strong competitive advantages. These kinds of businesses typically have stable profits which means they’re often reliable dividend payers.

Looking at Abrdn, I’m not convinced it’s a leader in its industry. When I think of major players in asset management, names such as BlackRock, Fidelity, and Vanguard spring to mind. Abrdn isn’t in the mix.

One thing I do know about Abrdn, having recently worked on a UK asset manager study, is that the company’s quite confusing to many people in the industry after its recent merger and rebranding activity. Previously, the company was known as Standard Life Aberdeen. However, it’s now called Abrdn and this confuses people. 

The name alone has attracted a lot of criticism. Indeed, a recent survey from online comparison website Investing Reviews found that Abrdn was the ‘worst investment brand’ in the UK.

Turning to the financials, I’m not too impressed. In recent years, profitability has been very volatile. That’s not ideal from a dividend investing perspective.

Year 2015 2016 2017 2018 2019 2020 2021E
Net profit (£m) 1,423 368 699 830 266 833 300

To put these figures in perspective, here are the net profit figures for Impax Asset Management, which is a smaller player in the market that focuses on ESG investing. Over the same time period, profit has grown considerably.

Year 2015 2016 2017 2018 2019 2020 2021E
Net profit (£m) 3.63 4.18 7.67 11.4 15.9 13.7 35.7

Dividend analysis

As for the dividend, one thing that concerns me here is that projected dividend cover is low. This year, analysts expect Abrdn to pay out dividends of 14.6p per share. However, they only expect the group to generate earnings of 13.3p per share. In other words, dividends may be greater than earnings. This indicates the payout may not be sustainable.

Should I buy Abrdn shares?

However, I’ll point out there are some things I like about Abrdn shares. For example, I like the fact CFO Stephanie Bruce just purchased shares (53,000 at a price of £2.56 per share). This indicates she sees value in the stock right now.

Recent results for the six months ended 30 June were also quite decent. For the period, adjusted operating profit was up 52% year on year.

Overall however, I don’t see much appeal in Abrdn shares. All things considered, I think there are much better dividend stocks I could buy for my portfolio today.

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And with so many great companies still trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

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Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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