Dividend held! An almost 10% yield makes this UK value stock look interesting

There’s been tough trading for this UK company, but an optimistic outlook means I can’t ignore the stock’s apparent value now.

| More on:
Person holding magnifying glass over important document, reading the small print

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.

The directors just authorised this UK stock’s dividend at last year’s level and issued an optimistic outlook statement. That means it’s now yielding almost 10% and it’s one I’m keen to research more with a view to buying.

The company in question is Liontrust Asset Management (LSE: LIO). As the name suggests, it operates as a specialist fund manager.

The back-story for the sector is that managed funds in general have endured a tough time because of negative sentiment among investors. That’s led to a steady leak of people pulling money out of managed funds.

Poor figures

So today’s (26 June) full-year results report from Liontrust looks like a bit of a slow-motion car crash of negative percentage figures where we’d all like to see positive ones.

Long-suffering shareholders have endured a terrible time as the chart shows:

But there’s a note of optimism in the outlook statement. The directors expect sentiment in the investing community to improve, especially if interest rates start to ease back.

If rates fall as hoped, it’s likely the environment for businesses, stocks and shares will improve. That may mean we’ll see an enduring period of prosperity and a steady bull market ahead. Although such positive outcomes are not certain, of course.

Nevertheless, as mentioned, the directors backed up their optimism by keeping that all-important shareholder dividend at last year’s level. I reckon that speaks well of the quality and value in the underlying business.

If they can repeat the trick for the current trading year to March 2025 as analysts predict, the forward-looking yield is now compelling – at least to me. With the share price near 732p, it’s a whisker above 9.8%.

Value and opportunity

However, to get that dividend income flowing into my portfolio, I’d need to embrace the risks and uncertainties here. One of them is that the company is small with a market capitalisation of just below £488m.

Another risk is the possibility that negative investor sentiment may never return for managed funds. It’s well-known that many – perhaps most – managed funds tend to underperform their benchmarks. So, there’s a growing movement of investors opting for low-cost, mechanically managed tracker funds instead. On top of that, the internet has made do-it-yourself stock-picking and investing accessible and cost-effective for all.

By 31 March 2024, the firm’s indicator of ‘assets under management and advice’ (AuMA) decreased by 11.5% compared to the prior year.

Nevertheless, chief executive John Ions said Liontrust has an expanding and “compelling” range of investment teams with robust processes. The brand is “strong”, and Ions is confident the business has a platform capable of delivering growth.

Value-style opportunities like this never look that great when examining the figures in isolation. But that’s why the value often arises in the first place.

Sometimes, it’s darkest just before the dawn. In this case, we may see the business recovering in the months and years ahead. So I’m rolling up my sleeves and getting stuck in with further and deeper research.

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.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Liontrust Asset Management Plc. 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

£10k in an ISA? Here’s how I’d aim to generate a ton of passive income

I dream of escaping the shackles of a salary with financial independence and a steady stream of passive income. Here’s…

Read more »

Investing Articles

Are Burberry shares a bargain or a value trap?

Appearances can be misleading in the stock market. Shares that look like a bargain can turn out to be a…

Read more »

Investing Articles

How I’d target £17,673 passive income with just £100 a week

Our Foolish writer explains how he’d build a portfolio capable of generating a life-changing passive income with limited capital.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

If I’d put £20k into a FTSE All-Share tracker fund 10 years ago, here’s what I’d have now

A lot of UK investors have money in FTSE All-Share tracker funds. Here, Edward Sheldon looks at how these products…

Read more »

Investing Articles

How I’d invest £10k in a SIPP to target £28,000 annual passive income

Investing just £10k today in a SIPP could be the key to a chunky retirement income in the long run.…

Read more »

Investing Articles

How I could earn a second income worth £35,000

Millions of us invest for a second income. Our writer explains how he's making it work and shares tips for…

Read more »

Investing Articles

3 ways Labour could impact the Rolls-Royce share price

Labour have swept to power on a pro-worker, pro-business ticket. But how could the new government influence the Rolls-Royce share…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

No savings at 35? I’d use Warren Buffett’s method to try and build massive wealth

Warren Buffett made most of his multi-billion-dollar fortune after turning 50. So what was his trick to building enormous wealth…

Read more »