I was watching this FTSE 250 stock like a hawk, convinced it had massive recovery potential and fascinated by its king-size yield. Then the inevitable happened. I turned my back and it went gangbusters, rising 45% in the last year. Isn’t that always the way?
The company in question is asset manager Aberdeen (LSE: ABDN). And it probably deserves its recent success, if only for refusing to collapse under the weight of investor derision aimed at it ever since the botched 2017 merger between Standard Life and Aberdeen Asset Management.
The ambition was to create the UK’s dominant fund manager but almost everything that could go wrong did. Flagship funds struggled, legacy portfolios overlapped, and the loss of a £25bn Lloyds mandate really hurt. To cap it all, the firm managed one of the worst branding pratfalls in recent memory, with its widely-mocked, vowel-stripping rebrand to abrdn in 2021. There was nothing funny about the collapsing share price though.
Recovery and income stock
By January this year, I was spotting signs of life, as assets under management and net inflows rose. Full-year 2024 results in March brought more positive news, along with the welcome decision to ditch the abrdn label.
When I examined the stock for The Motley Fool on 18 April, the shares were already starting to stir, up 12% in a month. The yield was a staggering 10% and the valuation looked compelling, with a price-to-earnings (P/E) ratio of just 9.2.
My conclusion was that Aberdeen was well worth considering for investors seeking a generous income stream, plus some share price recovery potential. Did I follow my own advice and buy the shares? No. And for once, that wasn’t a terrible mistake.
I passed because I already had heavy exposure to insurance and asset management through FTSE 100 financials Legal & General Group, M&G and Phoenix Group. This was exactly the profile of stock I like to buy: dirt cheap, high-yielding, and sitting in a sector I thought was ready to lift off. But I’d already thrown plenty of money at that recovery thesis, so for diversification’s sake, I backed off.
Still, it’s pleasing to see I got the investment case broadly right. M&G and Phoenix are also up around 45% over the last year, although Legal & General’s lagged with a more modest 14% gain.
Diversification’s essential
It’s surely no coincidence that Aberdeen, M&G and Phoenix have delivered almost identical 12-month returns. This looks far more like a sector-wide re-rating than anything company-specific (explain yourself, Legal & General!).
Aberdeen hasn’t had everything its own way. First-half profits dipped slightly when it reported on 30 July, largely due to ongoing efficiency efforts, it said. The shares have slowed since, up 7.5% in the last six months.
So can the share price go again in 2026? The valuation still looks reasonable, with a P/E of 13.25. The trailing dividend yield has slipped to about 7.25%, but that’s still highly attractive.
If interest rates fall further, high-yielders like this one should look even more tempting, as risk-free returns from cash and bonds fade. For long-term investors seeking a generous income stream and growth potential, Aberdeen’s well worth considering. Haven’t I said that before?
