Should I go for Standard Life Aberdeen’s 8% dividend yield, or is caution needed?

Am I nuts to even question the sustainability of Standard Life Aberdeen plc’s (LON: SLA) juicy dividend yield?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shareholders have endured a rocky ride since Standard Life merged with Aberdeen Asset Management during 2017 to form Standard Life Aberdeen (LSE: SLA). Hard on the heels of that move, the enlarged firm sold off its insurance business to Phoenix Group in a deal that left SLA with a stake of around 20% in Phoenix.

The old Standard Life shareholders who once owned shares in an insurance company with an asset management division attached now essentially hold the stock of an asset management business similar to the old Aberdeen Asset Management but bigger. They’ve also seen the shares they’re holding plunge around 45% since 2015, and I reckon a big factor in that move has been the uncertainty of it all.

Difficult trading

But that’s not the whole story. The enlarged asset management business has been suffering from an outflow of business, with clients such as Lloyds Banking Group pulling billions from SLA’s funds. In last month’s full-year results report the firm described a “resilient” performance in 2018 “against a challenging industry backdrop and weak investor sentiment.” Profit from continuing operations came in flat, and net outflows continued from the firm’s funds “but were concentrated in a small number of strategies.”

With SLA’s dividend yield so high and its valuation so low, it’s clear that the stock market fears the worst. It’s possible that trading could deteriorate further, after all, asset management is a cyclical business and cyclical sectors cycle down as well as up. More than anything else, I reckon those making an investment in SLA today will be looking for a turnaround in the company’s fortunes.

There’s been a lot of change in the operational set-up, but here’s the record with regard to the dividend and operating cash flow per share:

Year to December

2013

2014

2015

2016

2017

2018

Dividend per share

22.1p

20.9p

21p

22.7p

24.3p

22.6p

Operating cash flow per share

(170p)

(74p)

(126p)

43p

106p

29p

Zero dividend progress

Over five years there’s been zero real progress with the dividend and operating cash flow has been patchy. That’s not the kind of financial performance I want from businesses that back up my dividend-led investments. Ideally, I’m looking for operating cash flow, earnings and the dividend to rise a little every year from an enterprise with strong defensive characteristics.

I don’t think I’ll ever get that from Standard Life Aberdeen. In a half-decent general economic downturn or an extended bear market for shares, I reckon the firm’s earnings, dividend and share price all have the potential to plunge further from where they are today.

With my dividend investments, I’m looking to introduce some stability into my portfolio but fear that SLA would end up swirling it around in the washing machine of cyclicality. I’ll leave the stock for those gunning for a turnaround and seek my dividends elsewhere.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »