abrdn (LSE:ABDN) has endured a rough few years. The stock is down 23.4% over 12 months and 48% over three years. In other words, it’s lost almost half its value since the pandemic.
While I think momentum is an important factor in stock picking — it’s often one of the best indicators of future performance — it’s always great to pick up a top quality stock from out of the rough.
Index-beating dividend
The thing is, dividend yields and share prices are inversely related. So if the share price were to double, the dividend yield would halve, and vice-versa. And this is one of the reasons we’re looking at a 9.1% dividend yield. It’s a case of the share price falling rather than the dividend rising.
In fact, it’s worth noting that the dividend really hasn’t been moving in the right direction. In 2018 and 2019, payments came to 21.6p per share.
However, since 2020, dividend payments have amounted to just 14.6p per share a year — a sizeable reduction.
There’s another worrying sign too. In 2022, the dividend coverage ratio stood at just 0.72. This suggests that the company’s net income didn’t cover the dividend.
Of course, figures can be misleading, but the broad consensus is that earnings haven’t been moving in the right direction.
In fact, basic earnings per share are expected to come in at 4.69p in 2024 and 7.57p in 2025. Clearly, that’s below the stated dividend, in turn indicating there could be some troubles ahead.
The caveat here is that earnings can be adjusted for various factors such as non-recurring expenses, accounting changes, or extraordinary events.
Are there any positives?
The performance of asset managers has underwhelmed in recent years. That’s because higher interest rates naturally divert capital away from stocks and shares towards things like bonds or cash savings.
As such, total assets under management and administration fell by just 1% overall, from £500bn to £494bn in 2023.
So as interest rates fall over the coming years, we’re like to see assets under management steadily increase as capital returns to stocks and shares.
There’s also the matter of returning investor confidence. Geopolitical uncertainty, couple with higher interest rates, have led to clients de-risking their portfolios. This has been particularly challenging for the Interactive Investor (II) side of the business.
However, the brokerage industry does appear to be improving. Both AJ Bell and Hargreaves Lansdown have pointed to an improving environment for retail investment. Will it be enough to spur growth at abrdn? Well, in its 2023 report, it was apparent that growth in the II business made up for net outflows elsewhere.
abrdn is also becoming a leaner business. The company recently announced it was cutting 500 roles across the group as part of a new cost-cutting initiative. And that can be seen as a positive.
The bottom line however, is that abrdn hasn’t been moving in the right direction. There are signs a turnaround could be on the cards, but I’m also worried about the dividend. I won’t be buying for now.
