Is Abrdn one of the best dividend stocks to buy?

The Abrdn share price fall means the FTSE 100 firm offers market-mashing dividend yields. But does this make it one of the best dividend stocks for me to buy?

| 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.

The September stock market crash took few prisoners and the Abrdn (LSE: ABDN) share price slumped 6% over the course of the month. It even dropped to its cheapest since November 2020 at one point.

At 250p per share, the FTSE 100 firm’s now up just 4% on a 12-month basis. Does recent weakness represent a terrific dip buying opportunity for long-term investors like me? And is Abrdn one of the best dividend stocks for me to buy in particular?

Well Abrdn certainly packs plenty of punch when it comes to dividend yields. City analysts think the asset manager will match 2020’s total annual payout of 14.6p per share in both 2021 and 2022. This results in a yield of 5.8%, one which smashes the broader FTSE 100 average of 3.5%.

Restructuring progress

Of course, there’s more than just yield to think about when considering which are the best income stocks to buy. Firstly, there’s a company’s profits outlook to think about. And there’s plenty going on on this front at Abrdn.

The business was created from the 2017 merger of Standard Life and Aberdeen Asset Management. And it’s embarked on an aggressive programme of asset shedding to streamline its operations and focus more effectively on the asset management sector alone. This includes the sale of its Standard Life brands to Phoenix in February and divestment of its Parmenion private equity brand.

Abrdn also hopes the sale of non-core assets will bolster its long-term programme of cost reduction to give earnings an extra bump. The business reported a cost-to-income ratio of 79% between January and June, down 6% year-on-year. It hopes to pull the ratio to 70% by the end of 2023.

Is Abrdn a risk too far?

That being said, there are several reasons I think Abrdn might not be one of the best dividend stocks to buy. Firstly, that predicted 14.6p per share dividend for this year isn’t built on particularly strong foundations.

In fact, those projected payouts are higher than analysts think earnings will come in at for both years. And Abrdn doesn’t have the financial clout of some of its rivals like Legal & General to paper over these cracks and meet those dividend projections.

City analysts expect earnings at Abrdn to fall 88% in 2021 before rebounding 8% next year. But the level of fund outflows, while moderating more recently, remain substantial enough to cause me worry. Outflows clocked in at £5.6bn in the first half, suggesting investor confidence in the asset manager is still wafer-thin following the loss of a major contract with Lloyds a few years back.

The fact that Abrdn operates in a hugely-competitive marketplace isn’t helping its cause either. And I think its recent decision to rebrand could backfire spectacularly. By ditching the Standard Life moniker, the company’s thrown away a brand that’s been trusted by customers since the early 1800s. This is particularly risky for businesses that exists to protect people’s money.

All things considered I think there are better dividend stocks for me to buy right now.

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.

Royston Wild has no position in any of the shares 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

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

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

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »