Put a load of money into a financial stock in the hope of earning a second income? In this economy, with the sector under the cosh? Am I mad?
Well, if I was talking about money I might need in the next five years or so, then yes, I think it would be a big risk.
We could be stuck with high inflation and high interest rates for some years yet. And banks and finance stocks could stay down.
Decades
But I’m thinking about retirement money, and many of today’s investors still have decades left to achieve it. In the long term, finance stocks just look like cash cows to me.
But wait, I haven’t said which stock I’m thinking about.
I’ve looked at some FTSE 100 firms so far. But today, I’m leaving the top index and delving into the FTSE 250. And I like what I see at Ashmore Group (LSE: ASHM).
In particular, I like the look of its expected 9.8% dividend yield. And the fact that broker forecasts suggest it will remain solid at least until 2026 is a help.
Uncertain
Now, forecasts are uncertain at the best of times. And brokers often seem to be the last to notice when things are starting to go bad. So, there’s a risk the big cash payments won’t come off.
Profit dropped in 2023, and looks set to stay down for a couple of years. That’s not surprising when we examine Ashmore’s business.
The firm manages emerging market funds. A global pandemic followed by economic chaos is, to put it mildly, perhaps not the best time for that.
And, among my fellow Motley Fool writers, not everyone is bullish about Ashmore. Still, as we say, we firmly believe here that considering a diverse range of insights makes us better investors.
Share price
The 48% share price fall of the past five years lies behind today’s big dividend yield. And it shows that City investors really don’t like the Ashmore risk right now.
But, I reckon if the firm can keep its dividend going through the next few tough years, there’s a high chance it could come out the far side on a new winning streak.
And at the last count, Ashmore had bags of cash on the books to keep paying.
What if?
So, risk here aplenty. But emerging markets are often cyclical, and I think we could be near the bottom of the down cycle now.
I might be wrong, but what if I’m right? How long might it take me to bag my 10 grand a year second income from 9.8% Ashmore dividends?
I’d need a pot of around £102,000, which would be about 57,000 shares. And I could reach that in 20 years, with just £150 per month.
Contrarian
Would I put real money down on Ashmore?
As part of a balanced portfolio, yes, for sure. In fact, the stock brings out the contrarian in me. And it’s on my wanted list for a future buy.
