Don’t you love it when you’ve been fearing a possible dividend cut from a high-yield FTSE 100 stock, and then the company bounces back and proves you wrong? That, at least, is what I think just happened with the newly-renamed aberdeen group (LSE: ABDN).
The company posted 2024 results Tuesday (4 March), leading to a 7.7% share price spike on the day. We’re still looking at a 48% fall since 2021’s high point. But it’s not a bad start to a recovery, if that’s we’re seeing.
Danger signs
A consistent dividend of 14.6p probably helped avoid a worse share-price performance. Several troubling signs, however, led me to think the forecast 9% yield might not be sustainable.
One is a lack of cover by earnings over the past few years. Especially as the company even slumped to a loss per share in 2022, while still paying out the cash. Forecasts weren’t much better, with City analysts seeing the lack of cover continuing until at least 2027.
The latest results haven’t fully alleviated that fear. And the forecasts have yet to be updated. But the company did report adjusted earnings per share (EPS) of 15p, marginally ahead of the dividend.
It sounds like we might be back to profit growth sufficient to back the dividend too, as CEO Jason Windsor told us: “The group grew profit in 2024 for the first time in three years.” After a 5% fall in operating profit in 2023, that could mark a happy turnaround.
Assets and flows
In 2023, assets under management declined by 1% to $495bn, which isn’t a big drop but it marked a continuing decline. For 2024, we saw a 3% rise to £511bn.
Net outflows continued in 2024, at £1.1bn. And excluding liquidity movements, the outflow rises to £6.1bn. Clearly, investors will want to see net inflows. But this was a much better result that the previous year, which saw net outflows of £17.6bn (£13.9bn excluding liquidity).
Again, this boosts my confidence in the likelihood of the dividend being maintained in 2025 and hopefully beyond. The longer term is obviously open to risk. And with the economic outlook still pretty ropey, it’s far from being a negligible risk.
Things to watch
There are two things in aberdeen’s targets which I think could determine the sustainability of the dividend.
Firstly, the company is targeting an adjusted operating profit of at least £300m by 2026. It would be supported by a predicted “significant uplift in contribution” from the firm’s interactive investor division. And it would mark a rise of at least 18% from 2024’s result. As a target, it might not be a huge one. But I think it could be sufficiently stretching, and achieving it could be key.
The other is net capital generation, expected to rise to about £300m in 2026, approximately 26% above the 2024 figure.
There can be no guarantee of dividends. But I think investors seeking long-term passive income could do well to consider aberdeen.
