The FTSE 250 is home to some truly eye-popping dividend yields. One of the most spectacular comes courtesy of specialist emerging markets fund manager Ashmore Group (LSE: ASHM). Today, it has a trailing yield of 10.22%.
At that rate, it could double an investor’s money in less than eight years, even if the shares don’t rise at all. Imagine if investors got share price growth on top! But is that likely to happen?
Ashmore Group shares struggle
Experienced investors know to tread carefully around ultra-high yields. I don’t think many boards aim to divvy up 10% of their capital value every year. It tends to happen by accident.
Typically, this happens where a stock falls, while the dividend is either held or increased. That’s what’s happened here, and for a good number of years.
In 2015, Ashmore paid a dividend per share of 16.65p. It froze payouts at that level until 2020, when it increased it slightly to 16.9p. And it’s been frozen again, for the last five years. Over the same period, the shares have fallen 60%.
In fact, the Ashore share price decline has been going on a lot longer than that. The shares now trade at similar levels to April 2009, just after the financial crisis.
Ashmore was in vogue during the glory days of the emerging markets boom, when investors couldn’t get enough of Brazil, Russia, India, China, collectively known as the BRICS. Emerging markets then went into a slump, taking Ashmore’s share price down with it as investor interest drifted elsewhere, primarily to US tech stocks.
Massive dividend income
Emerging markets are suddenly having a moment again. Figures from Fidelity show this is the most successful investment sector of the year, up 25%. Yet the Ashmore share price climbed just 2.5% this year.
It hasn’t taken advantage of that dramatic cyclical swing in its favour. Full-year results to 30 June showed adjusted EBITDA earnings falling 33% to £52.5m, with a drop in performance fees.
Q1 results, published on 14 October, showed a 2% rise in assets under management to $48.7bn and a drop in redemptions. The board reckons it’s well placed to capture the shift in allocations from the US to emerging markets and elsewhere. Sadly, it still hasn’t done much for the share price.
Perhaps it’s taking time for the good news to filter through to investors? Given the low-ish price-to-earnings ratio of 13.5, Ashmore could be a bargain for brave investors. If we could be sure of that dividend, I’d be tempted myself. But I’m not sure. Last year, cover was down to 0.7. Management has even been selling assets to cover the cost.
There’s a chance Ashmore could catch that emerging markets wave. But I think the chance of a dividend cut is too high to consider buying the stock today. There are much safer ways to bag a super-sized income from FTSE shares, and I’ll continue to explore those instead.
