When share prices are depressed, dividend yields rise. So what opportunities are there right now for us to lock in some long-term cash?
Aberdeen Asset Management (LSE: ADN) has seen its share price tumble by 46% over the past 12 months, to 235p, although it has recovered 11% in the past week or so. With earnings of 19.8p per share forecast for the year to September 2016, we’re looking at a potential dividend yield of 8.4% — although EPS would be falling and the dividend would be only around 1.2 times covered.
Aberdeen’s problem is its heavy investment in developing economies, with the Chinese slowdown causing it considerable grief. A quarterly trading update on Wednesday told us of net outflows of £9.1bn, although that was an improvement on the £12.7bn outflow the previous quarter — and to put it into perspective, assets under management actually rose a little to £291bn.
Chief executive Martin Gilbert, while speaking of “structural imbalances of the global economy and the cyclical slowdown in emerging markets, as well as the impact of falling oil and commodity prices“, did at least say that “we are well placed to navigate the current difficult market conditions offering a wide range of investment capabilities for investors“.
I feel Aberdeen’s dividend might well not match current forecasts, but it should still provide decent long-term yields.
Cash from energy
The big question for electricity and gas supplier SSE (LSE: SSE) is whether its dividends will provide the 6.2% and 6.4% yields currently forecast for the years to March 2016 and 2017 respectively. A third-quarter update released Thursday suggests it will, with the company telling us it “still expects to report an increase in the full-year dividend for 2015/16 that will at least be equal to RPI inflation” and that it plans to do the same again the following year.
The shares picked up a fraction in response, up 11p to 1,443p as I write, and that puts them on forward P/E multiples of around 12.5 for the two years, with adjusted earnings per share of “at least 115 pence” indicated for this year — slightly ahead of the market consensus. And that comes despite SSE’s plan to cut household gas prices by 5.6% in March — there are some benefits to a falling oil price.
All in all, times are “challenging“, but SSE still seems like a solid long-term income investment to me.
The emerging markets problem also lies behind the woes at investment manager Ashmore Group (LSE: ASHM), which has seen 26% knocked off its share price in the past 12 months, to 214p — although, again, we’ve seen a modest 9% recovery in the last week. That’s pushed the potential dividend yield for the year to June 2016 up to a heady 7.9%.
But before you go rushing to buy, a forecast 23% fall in EPS would mean that won’t be covered by earnings, which would come in a little short.
In its second-quarter update, the firm reported a $1.17bn fall in assets under management due to outflows. In the short term, China is going to hurt, but chief executive Mark Coombs did speak of the possibility of “…very good performance in emerging markets assets as their attractive fundamentals begin to show through“.
Will the forecast dividend be met? I don’t know, but I still see a decent longer-term possibility here.
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Alan Oscroft has no position in any shares mentioned. 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.