Plenty of FTSE 100 companies have fallen in recent days but one dividend income stock has fallen fastest of all. I’m intrigued because I’ve been wondering whether to buy this share for ages, but deemed it too expensive. Is now my opportunity?
The company in question is Edinburgh-based asset manager abrdn (LSE: ABDN). Until recently, its share price was bombing along quite nicely, rocketing up by 75% from a low of 133p last October to 231.9p at the end of July. It was trading at more than 20 times earnings, though, and I deemed it too expensive. I’m glad I did, given what’s happened this month.
The cruellest month
August has been brutal for abrdn. Its share price has crashed by 25% since the start of the month to 176.2p and there’s no end to the pain as yesterday it was the FTSE 100’s biggest faller. It is up by 5.92% over one year but its longer-term performance is poor having fallen by 42.29% over five years.
I love buying stocks when the market dips and the good are sold off with the bad. Unfortunately, that isn’t the case here. abrdn is falling faster than everyone else due to the aftershocks of last Wednesday’s disappointing first-half results.
Assets under management fell from £500bn to £496bn as stock market volatility spooked investors. Its investments segment did particularly badly with revenues down by 15% to £466m, as clients pulled money or moved it into cash and bonds to take advantage of rising interest rates.
Yesterday’s wages figure triggered fears that base rates will now peak at 6%, which will also favour cash and bonds over equities. That explains why abrdn fell harder than any other FTSE 100 stock.
Its half-yearly results weren’t all bad news, with net operating revenue up 4% to £721m while its purchase of the Interactive Investor platform is paying off with positive flows of £1.9bn. The board also announced another £150m share buyback and abrdn’s capital position is strong.
I’ve got other targets
Inevitably, the stock is now cheaper than it was, trading at 17.38 times earnings. But it’s still more expensive than comparable financial services companies Aviva (9.98 times), Legal & General Group (11.2 times), and M&G (10.9 times).
abrdn is forecast to yield 8% in the year ahead but there is a catch here, too. That payout is covered just 0.9 times by earnings, which may explain why markets took such a dim view of its results. They fear for the dividend and so do I.
A quick look at its recent dividend per share history suggests they might be right to worry. In 2020, shareholder payouts were slashed from 21.6p per share to 14.6p (profits and assets under management were falling then, too). It was frozen at 14.6p both in 2021 and 2022.
I already hold L&G and M&G in my portfolio. They are cheaper and their dividends look more sustainable, too. I can look forward to yields of 8.72% and 10.1% respectively in the year ahead. I’m not sure how long abrdn’s will last and I won’t be buying it despite the dip.
