Is this 10.5% dividend yield too good to be true?

This FTSE 250 stock offers one of the highest dividend yields on the London Stock Exchange, but is it actually sustainable, or is it a trap?

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Even after the FTSE 250 jumped 15% over the last 12 months, there are still plenty of chunky dividend yields on which to capitalise. And among the highest payouts in the UK’s second-leading index belongs to abrdn (LSE:ABDN).

If I were to buy shares today, it would instantly unlock a 10.5% dividend yield, generating £10.50 for every £100 invested. Considering the market average yield’s usually between 3% and 4%, seeing shareholders rewarded so generously is pretty exciting. But high yields have a habit of not lasting. So is this truly a fantastic income opportunity, or is the double-digit yield only temporary?

Investigating the yield

It’s important to remember one of the primary influences on a stock’s yield isn’t the dividend but rather the share price. When a stock takes a tumble, yields rise. And that’s precisely what’s going on with abrdn.

Should you invest £1,000 in Burberry Group Plc 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 Burberry Group Plc made the list?

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The asset management enterprise hasn’t exactly been on a great run of late. And while there were some encouraging signs of recovery in its interim results, investors were once again left disappointed following its third-quarter earnings. Consequently, the share price crashed almost 25% in the second half of October.

Assets under abrdn’s management remain steady, growing by 2% to £507bn, thanks to stronger stock market performance and improving investor sentiment. However, the problem lies with the firm’s net outflow. Despite better market conditions, clients are still withdrawing their funds especially in its Advisor segment. And year-to-date around £4.5bn of net cash outflows have occurred.

Management’s acknowledged this problem and has already started taking steps to try and resolve it with a particular focus on improving client experience and well as adjusting pricing to remain competitive. At the same time, its recently-acquired Interactive Investor segment’s generating net cash inflows helping offset the lacklustre performance of its other divisions.

So while £4.5bn is leaving Abrdn’s ecosystem, it’s significantly less than the £13.5bn suffered a year ago over the same period. But what does this all mean for dividends?

The income opportunity

Management remains confident it will deliver £60m of annual cost savings by the end of 2024, up to £150m before 2026. That’s good news for profit margins. And if the firm can plug the hole causing net outflows, the firm’s top line might also finally get back on track.

Sadly, dividends weren’t mentioned in the latest quarterly earnings, suggesting they’re not a high priority right now. And the latest analyst forecasts don’t expect any further dividend growth before 2026. Therefore, dividends are likely to remain frozen at 14.6p for a few more years.

That does suggest the 10.5% is here to stay. But if net outflows persist, the abrdn share price could fall much further. And personally, given management’s mediocre track record over the last few years, I’m not willing to give it the benefit of the doubt for my portfolio without seeing further progress.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Burberry Group Plc 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 Burberry Group Plc made the list?

See the 6 stocks

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.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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