It can be tempting when looking for dividends just to focus on the high yields in the flagship FTSE 100 index. Notable examples here include Phoenix Group’s 9.4% and the 10.2% at M&G. But the FTSE 250 index also contains some high-yield shares of note.
One is asset manager aberdeen group (LSE: ABDN), with its 9.8% yield.
The dividend history here is not thrilling. Thedividend per share has been held flat for years after the most recent cut.
But past performance is not necessarily a guide to what will happen in future. If the FTSE 250 firm simply maintains its dividend per share without increasing it, its prospective yield is 9.8%. That certainly looks attractive to me.
Promising signs of recovery
I have been eyeing aberdeen shares as a potential addition to my portfolio for some time. But I have long been concerned about the rather lacklustre, inconsistent business performance and what it means for the dividend.
After all, as long-term aberdeen shareholders know only too well, no dividend is guaranteed to last.
But last year’s performance provided some signs of a business that may be on the mend. Net client fund flows were still negative, but much smaller than the prior year. Still, I see a risk that if investors continue to withdraw more than they put in, it could hurt aberdeen’s long-term profitability.
Net capital generation was up by around a third, which I see as a positive sign for maintaining the dividend. Diluted earnings per share also moved up strongly.
Still, the point about outflows concerns me. It helps explain why adjusted operating net revenue showed a 6% year-on-year decline.
Not out of the woods yet
So, although the results contained some promising signs of progress, I think management has work left to do.
One of the key tasks is reversing the net flow of funds, so that aberdeen is dealing with larger not smaller amounts of money overall. I see that as helpful for profits over the long run.
If the FTSE 250 business can improve its net capital generation, that will help increase dividend coverage. I think that in turn could also be good for the share price, which has fallen 21% over the past five years. That contrasts very badly to a 39% increase for the FTSE 250 index overall during that period.
aberdeen expects to increase net capital generation to around £300m next year, an increase of roughly a quarter from 2024.
I feel increasingly confident that aberdeen will maintain its dividend. Indeed, in its results the company’s chief executive said that its strategy ought to enable aberdeen “to maintain the historic dividend per share from materially higher, and sustainable capital generation.”
But while the business performance seems to be moving in the right direction, I would like more evidence that the shift is sustained and sustainable.
So, instead of buying now, I will continue to keep aberdeen on my watchlist. I’ll look to see whether it is able to maintain high net capital generation and also move from negative to positive net fund flows.
