FTSE investment manager abrdn (LSE: ABDN) remains one of my core passive income holdings.
These are stocks selected specifically for their ability to generate high dividend income. And they do so with minimal effort from me – hence the ‘passive’ label attached to such money.
What’s the current yield and future projections?
abrdn paid a total dividend last year of 14.6p a share. This gives a yield of 9.2% based on the current share price of £1.58.
It is useful to note for context that it has paid the same dividend since 2020. However, its yield has changed over the period in line with its share price moving up and down.
It is also apposite to know that analysts forecast the same dividend will be paid in each of the next three years.
How much passive income can be made?
‘Dividend compounding’ is a standard share investment tool involving the reinvestment of dividends back into the stock that paid them. I, along with many former investment professionals and private investors I know, always use this method to maximise our returns.
However, even without doing this, the income from abrdn shares is much higher than from a regular UK savings account.
Specifically, investors considering a holding of £11,000 (the average UK savings) in abrdn would make £1,012 in dividends in the first year. On the same average 9.2% yield this would rise to £10,120 after 10 years and to £30,360 after 30 years.
That said, £11,000 on the same 9.2% average yield – but with the dividends reinvested – would generate £16,506 after 10 years, not £10,120. And after 30 years on the same basis it would increase to £160,978 rather than£30,360.
Adding in the initial £11,000 investment and the abrdn holding would be worth £171,978 by then.
This would be paying £15,822 a year in dividend income by that point! But it is important to remember that none of this is guaranteed.
How does the business look?
A risk to abrdn’s outlook is the cut-throat competition in its business. Another is a further rise in the cost-of-living crisis that might cause customers to scale back their investment policies.
However, I think the firm’s current reorganisation strategy is progressing well. It is partly focused on reducing costs, mainly in middle management, which is always a good thing in my view. The other part is targeted at increasing profits for clients through improved product offerings.
H1 results saw an IFRS post-tax profit of £171m against a £145m loss in H1 2023. Over the same period, costs fell 13% year-on-year to £372m.
Its Q3 trading update showed assets under management increased 2% year on year – to £507bn.
Will I buy more of the stock?
I already have a sizeable holding in abrdn. However, given the positive way it is reorganising and its huge yield, I will be buying more shares very soon indeed.
