Shares in Aberdeen Asset Management (LSE: ADN) have fallen by almost 5% today after the release of the company’s full year results. With profit before tax falling to £353.7m from £354.6m in the previous year, the market appears to be somewhat disappointed with the company’s performance – especially with net outflows being significant at £33.9bn for the year to 30 September 2015.
A key reason for such major outflows is, of course, pessimism towards the emerging markets in which Aberdeen has a major presence. As such, the trend of outflows could continue moving forward and this could be a key reason for the company’s forecast fall in earnings of 19% in the current year.
Despite this, Aberdeen’s current valuation appears to take into account the challenges currently being faced. For example, it has a price to earnings (P/E) ratio of 12.9 and, with a yield of 6.1%, remains a very enticing income play. Furthermore, dividends are well-covered at 1.3 times and this indicates that the current level of payout is not only sustainable, but that there is scope for dividend rises in future. Certainly, Aberdeen may not be the most stable of companies at the present time, but it remains a top-notch income play nonetheless.
Similarly, Investec (LSE: INVP) is also a very appealing income stock, with its shares currently yielding 4.1%. Their real strength, though, is with regard to their growth potential, since Investec is forecast to increase shareholder payouts by 12% next year, which puts it on a forward yield of 4.5%. And, with dividends due to be covered almost twice by profit next year, there appears to be huge scope for further strong dividend rises over the medium to long term.
Allied to this is an excellent earnings growth profile which is set to see Investec’s bottom line rise by 11% in the current year and by a further 12% next year. And, with its shares trading on a price to earnings growth (PEG) ratio of only 0.9, there appears to be scope for an upward rerating to its shares to go alongside an excellent income yield.
Meanwhile, BP’s (LSE: BP) dividends have been cast into doubt recently as the company’s profitability has come under pressure. As such, the market appears to have priced in a fall in shareholder payouts, with BP now yielding a whopping 6.8%.
Looking ahead, a dividend cut appears to be reasonably likely since BP’s profits are not expected to fully cover dividends in the current year. Even with growth in net profit of 6% pencilled in for next year, earnings are still forecast to stand at just 90% of dividends. Although this is not a major problem in the short run, in the long run such a situation is unsustainable and either profit will have to rise at a brisk pace or dividends will have to be cut. The former is, of course, very possible but will probably require a rise in the oil price over the medium to long term.
As such, BP remains a relatively risky income stock, although even if dividends are halved then it is still likely to offerstrong long term growth in shareholder payouts. Therefore, it remains a relatively enticing income play for the long term.
Peter Stephens owns shares of Aberdeen Asset Management and BP. The Motley Fool UK has recommended Aberdeen Asset Management. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.