FTSE 100 dividend income shares are a terrific way of building wealth for the future, and after this week’s stock market fall, many look great value.
Asset managers always have a hard time of it during a crash, so buying them involves a fair bit of risk. Yet I’d snap up fund manager Abrdn (LSE: ABDN) today. It offers me a hugely attractive dividend income yield of 7.9%. That should help my portfolio keep pace with today’s surging inflation rate.
With luck, I will also see some share price growth on top, once markets recover, as history shows they always do at some point.
The Abrdn share price has been hit hard in a turbulent year for shares, falling from 248p to around 184p per share, at time of writing, a drop of more than 25%. To some investors that might look like a disaster. To me, it’s a chance to buy a top dividend income share at a reduced price.
I’d buy fund manager Abrdn for its 8% yield
When a top dividend income stock falls in value, you have to look at the reason why. In this case, it is due to factors beyond Abrdn’s control. In a stock market crash, good shares fall with the bad. Fund managers have even less chance of escaping the fallout.
Abrdn has been doing pretty well otherwise. In March, full-year revenues increased for the first time since its troubled £11bn merger with Standard Life in 2017. Adjusted operating profit for the year to 31 December rose 47% to £323m. Net fund outflows fell from £12.3bn in 2020 to £3.2bn. It is finally heading in the right direction.
The company’s dividend income stream is generous but covered just one time by earnings. Management held the annual payout at 14.6p a share last year, the same it paid in 2020 (it was cut from 21.6p in 2019). The board plans to maintain the dividend at this level until cover strengthens to 1.5 times. That could take a few years, but I’m not complaining, given today’s sky-high yield.
This is a top FTSE 100 dividend income stock
Abrdn bought investment platform Interactive Investor for £1.5bn last year, giving it access to the platform’s 400,000 retail customers. It now has a strong base in the growing online trading market. Interactive Investor is a respected, established brand. The purchase also gives Abrdn a reliable income stream from monthly subscriptions.
This FTSE 100 dividend income share has been through a tough spell but now stands on more solid ground. The big threat, of course, is that stock market volatility will increase fund outflows and deter Interactive Investor customers from pumping more money into the market. It could have the opposite impact, of course. Some investors like volatility.
These short-term ups and downs do not trouble me. When I buy top dividend income stocks, I aim to hold them for the long term – to retirement and beyond. Today’s valuation of just 13.3 times earnings looks like a solid entry point to me. That near-8% yield is too tempting to resist. I’d buy it for the long term.