The Jupiter dividend yield could sink. Here’s why

This shareholder reckons the Jupiter dividend could plummet next year under a new policy. Here’s why he isn’t selling his shares.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Autumn season in the night sky

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As a shareholder in Jupiter (LSE: JUP), I appreciate its meaty dividend. The Jupiter dividend yield is currently a jaw-dropping 17%.

But that could be set to fall – perhaps dramatically. Below I explain why, and the reason I will keep holding Jupiter shares.

Tough times for asset managers

In line with many of its peers in the UK asset management sector, Jupiter has been battling challenging business conditions. A weak economy can lead to investors withdrawing funds, hurting revenues and profits.

Assets under management at Jupiter fell 19% in the first half. Partly that reflects market valuation movements. But alarmingly the fund saw net outflows of £3.6bn. The rot continued last quarter, with a further £0.6bn of net outflows. That matters because a smaller base of assets under management typically hurts a manager’s ability to generate profits.

New dividend policy

Despite its weak business performance, Jupiter stuck to its dividend policy and the interim payout matched last year’s.

Last month, however, the company announced a new capital allocation policy. Part of that is a share buyback programme of up to £10m, which has already begun. I see that as positive – the Jupiter share price has been battered so now strikes me as a good time for the company to buy and cancel some of its shares.

Part of the new approach involves resetting the ordinary dividend policy to 50% of pre-performance fee earnings. That means it may move around more than before, as fee earnings are unlikely to be constant from year to year.

Crucially, the Jupiter dividend “will no longer be subject to a minimum of the prior year amount”. Jupiter’s annual basic dividend has been maintained for years, although the split between the interim and final payments has changed. The new policy means that the company will no longer aim to match the previous year’s dividend and instead base the payout on earnings.

Where now for the dividend?

In practice I expect that to mean that next year’s dividend falls, perhaps sharply.

Unhelpfully, “pre-performance fee earnings” did not appear as a phrase in last year’s final results or this year’s interim ones. But “underlying earnings per share excluding performance fees“ last year came in at 24.1p. If that is a rough proxy for the new measure, the annual basic dividend per share would have been around 12p compared to the 17.1p that was paid out last year under the current dividend policy. Given the decline in business, I expect 2022 earnings to be below 2021 levels.

On the plus side, the new policy may lead to a dividend increase if earnings are strong enough. Jupiter may be able to use its strong brand to attract new clients and stem the outflow of funds. I expect long-term demand for financial services to be robust even if it dips during this recession.

I’m holding

Although I would be disappointed to earn smaller Jupiter dividends, for now I plan to hold the shares. Even after a cut, the yield could still be substantial.

The introduction of the new policy suggests the company’s new management is serious about recognising the challenges currently facing Jupiter. Hopefully they will take more steps to address them, which could help turn around the recent poor performance.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane has positions in Jupiter Fund Management. The Motley Fool UK has recommended Jupiter Fund Management. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »