This FTSE 250 stock has fallen 26% in a year, but still yields 8.6%. Time to buy?

Christopher Ruane looks at a FTSE 250 company with a dividend yield north of 8%. Could the passive income potential persuade him to put it in his portfolio?

| 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.

Bus waiting in front of the London Stock Exchange on a sunny day.

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 FTSE 100 contains some high-yield shares right now, from British American Tobacco to Aviva. But the FTSE 250 index of smaller and medium-sized companies also contains members with high figures.

In fact, one currently offers an 8.6% yield – higher than either British American Tobacco or Aviva at the moment.

Ought I to buy it for my portfolio?

Should you invest £1,000 in BHP right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BHP made the list?

See the 6 stocks

Well-known name, of sorts

The company in question is Standard Life Aberdeen. Or at least it used to be, before losing its vowels to become abrdn (LSE: ABDN). It is not just the vowels that got lost – its shares have fallen close to 40% since that name change was announced in April 2021, and are down 26% over the past year alone.

But that period has been challenging for the investment industry in many ways. abrdn shares are down just 3% this year and have rallied an impressive 25% over the past three months. On top of that, the 8.6% dividend yield looks juicy to me.

Created with Highcharts 11.4.3aberdeen group PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

So, could this be a stock worth adding to my portfolio?

Multiple challenges but long-term promise

The name change bothers me partly because a well-known and recognisable brand can be a valuable asset for a financial services company. Fortunately, abrdn does still have a variety of strong assets, from well-recognised operating brands to a sizeable customer base.

In the first quarter of this year, it reported assets under management and administration of over half a trillion pounds, an increase over the same quarter last year.

Last year the first quarter saw a sharp net outflow of funds. But this time around, that number was positive, meaning clients put in more funds than they withdrew.

That sort of client base can be the basis of a profitable business. abrdn’s basic earnings per share have moved around a lot, including some losses. But over time the firm has demonstrated that its business does have the potential to generate sizeable profits when doing well.

Created using TradingView

Indeed, the current price-to-earnings ratio of 12 looks fairly cheap – but the company is trading on less than 4 times 2021 earnings. That means it could be a bargain if it can fix some of its recent challenges.

They include clients pulling funds out across the industry as a whole (a factor that affected abrdn last year) and achieving consistent profitability. A cost-cutting programme is in place to try and help with that – but, as always, cost-cutting can be a risky business if it upsets clients or staff.

High-yield dividend stock

Those challenges have seen the FTSE 250 firm hold its dividend per share flat in recent years after a big cut in 2020.

Created using TradingView

Still, even if the dividend is held flat, that 8.6% yield looks attractive to me.

The concern I have is that the business has been an inconsistent performer over many years. There is a reason the dividend is smaller than it was over a decade ago.

I think there are ongoing risks, notably if an economic downturn hurts client demand, so for now I will not be investing.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

C Ruane has positions in British American Tobacco P.l.c. The Motley Fool UK has recommended British American Tobacco P.l.c. 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

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Around a 1-year high, is there enough value left in Next’s share price to make it worth me buying?

Next’s share price has risen a lot in eight months, but there could still be a lot of value left…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

OMG DYOR but IMO this ‘cool’ FTSE 100 stock offers bangin’ VFM!

Despite being one of the least trendy 50-somethings around, our writer considers how Gen Z could help push this FTSE…

Read more »

Investing Articles

2 cheap FTSE 100 and FTSE 250 growth stocks to consider as stock markets sink

I think these Footsie and FTSE 250 growth shares could be very shrewd buys to consider in the current climate.…

Read more »

Investing Articles

3 shares I’ve bought in the 2025 stock market sell-off

The stock market has experienced a lot of turbulence in recent weeks. Edward Sheldon has been taking advantage and buying…

Read more »

Investing Articles

Investors considering HSBC shares could aim for £8,453 a year in passive income from just £5 a day!

A relatively small daily investment in HSBC shares over several years can produce an extraordinary level of annual passive income…

Read more »

Investing Articles

The Rolls-Royce share price has fallen! Is this the moment investors have been waiting for?

Even the Rolls-Royce share price can't escape current stock market volatility, falling slightly over the last week. Should investors consider…

Read more »

Modern suburban family houses with car on driveway
Investing Articles

Down 59% from its 12-month highs, is this FTSE 250 stock too cheap to ignore?

Shares in FTSE 250 housebuilder Vistry are almost certainly too cheap to ignore. But are they discounted enough to offset…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

As the S&P 500 struggles to recover, here’s what Warren Buffett’s doing

The S&P 500 is fighting to regain its February highs amid ongoing trade tariff uncertainty. Our writer looks to the…

Read more »