An 8% yield but down 23%, is this FTSE 100 stock now a major bargain?

This high-yielding FTSE 100 stock’s H1 results had many good parts, but the shares fell further, so I wonder if the stock is now a significant bargain.

| 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.

Businesswoman calculating finances in an office

Image source: Getty Images

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.

FTSE 100 investment firm abrdn (LSE: ABDN) is down 23% since 20 July. The fall started in the run-up to its H1 results release on 8 August and has continued since.

In my view, the results did not merit such a valuation drop, and the company has much going for it.

For a start, it looks likely to maintain high yields and share buyback programmes for its shareholders. Last August it was dropped from the FTSE 100, following a 40% decline in its share price. And crucial to its quick return (in December) was its policy of ensuring excellent shareholder returns.

To support these rewards, it will also have to continue to build out its core business, it seems to me.

Core business is strengthening

The focus of many analysts in the H1 results was the £4.4bn fall in assets under management (AUM). However, some people cutting back on their investments during the cost-of-living crisis is understandable to me.

This remains a risk for the shares, of course. Another risk is of a broader financial crisis at some point, which might make trading profits more difficult to generate.

In any event, the AUM loss was less than 1% of the total at the end of 2022. And it is still managing over £495bn.

Elsewhere in the results, there seemed much to support the idea of ongoing business growth. Net operating revenue rose 4% to £721m and adjusted operating profit increased 10% to £127m on last year.

These numbers were bolstered by the company’s recent efforts toward diversification. This included last March’s acquisition of interactive investor, which accounted for the net operating revenue increase in the H1 results.

In a similar vein, abrdn launched an investment platform with Virgin Money in early April. Customers will be able to invest through this in a Stocks and Shares ISA or a non-ISA account.

Broadening its sectoral presence further, abrdn announced on 21 June plans to acquire the healthcare funds of Tekla Capital Management. The deal includes four NYSE-listed healthcare and biotech thematic closed-end funds, totalling £2.6bn in AUM.

Stellar shareholder rewards

Despite its temporary FTSE 100 exile, a full-year dividend of 14.6p per share was paid, the same as in 2021. It also announced a £150m share buyback, which is near completion. Additionally, it restated an ongoing annual dividend target of 14.6p.

In the H1 results, it announced a 7.3p interim payout. It also announced a £150m extension to its previous buyback.

The yield on the shares now is just over 8%, based on its current share price of £1.82.

If this yield remained for over 10 years, a £10,000 investment now would make me £800 per year in passive income.

This return would not include further gains from any reinvestment of dividends or share price appreciation. On the flipside, it does not account for any tax liabilities or share price falls.

I already have holdings in the sector. If I did not, I would seriously think about buying abrdn shares, as they look a major bargain to me. I believe the extreme losses in the share price are unwarranted and will be reversed over time. I also expect it to keep paying healthy yields, given its recent experience of relegation from the FTSE 100.

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.

Simon Watkins 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.

More on Investing Articles

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Why the FTSE 250 looks an incredible bargain

While all the attention is on the elite FTSE 100, the mid-cap FTSE 250 index looks unbelievably cheap. I don't…

Read more »

2024 year number handwritten on a sandy beach at sunrise
Investing Articles

Here’s my plan to make the most of juicy UK shares ahead of 2024 and beyond!

Our writer reckons there hasn't been a better time to snap up quality UK shares. She explains how she's planning…

Read more »

Young Black woman using a debit card at an ATM to withdraw money
Investing Articles

Here’s how many Lloyds shares I’d need to buy for a £100 monthly income!

Offering a higher dividend yield than the average across FTSE 100 stocks, are Lloyds shares worth buying for passive income…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

Up 27% in 2023, what next for the Tesco share price in 2024?

The Tesco share price has had a great 2023, rising 27% while the FTSE 100 was flat. But what might…

Read more »

Hand is turning a dice and changes the direction of an arrow symbolizing that the value of an ETF (Exchange Traded Fund) is going up (or vice versa)
Investing Articles

FTSE 250? No, I’d buy this index fund instead

Investing in index funds can be a profitable enterprise. Our author has been exploring the different options to determine the…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

This 4% yielding FTSE 100 giant is dirt-cheap and perfect for passive income!

Looking for a mammoth business with shares trading at discount levels and offering an excellent passive income opportunity? Our writer…

Read more »

UK money in a Jar on a background
Investing Articles

Here’s how I’d use dividend shares to try and turn £5,000 of savings into passive income of £900 a year

With dividend shares at today’s prices, Stephen Wright thinks there are two ways to turn a £5,000 investment into something…

Read more »

Investing Articles

After a recovery that Lazarus would have been proud of, is the easyJet share price worth a look?

With its dividend restored and its balance sheet repaired, the easyJet share price looks like a bargain. But Stephen Wright…

Read more »