I’ve been scouring the FTSE 250 for dirt-cheap dividend stocks with ultra-high yields and it didn’t take me long to find one.
Asset manager abrdn (LSE: ABDN) has had a miserable run since being formed by the £11bn merger between fund managers Standard Life and Aberdeen Asset Management in March 2017. Today, the group is worth a meagre £2.87bn.
Why abrdn's Share Price Has Tanked
The merger failed on every front as the group had to cull more than 100 funds that basically did the same job, blundered into a legal battle with Lloyds, which pulled £25bn of its fund mandate, and became a comedy meme after its much-lampooned 2021 rebrand. Now I think the sell-off has been overdone (or ovrdn, as the abrdn might say).
The Case for Buying abrdn
The shares look good value at just 11.35 times trailing earnings. That’s slightly below the average FTSE 250 P/E of 12.2 times.
In today’s half-year results, interim CEO Jason Windsor reported an “encouraging start” to 2024, “as we become more efficient, and we enhance our propositions to lay the foundations for growth”.
abrdn's Performance & Growth Prospects
Note he said “lay” the foundations. The growth isn’t actually there yet. Net operating revenue actually fell 7% to £667m due to outflows and lower margins, partly offset by an increase in adviser revenue.
Adjusted operating profit climbed 1% to £128, mostly through a 9% cut in adjusted operating expenses to £539m. abrdn is on track to save £150m a year by the end of 2025.
Assets under management climbed 2% to £505.9bn due to positive market movements and flows. On an IFRS basis, last year’s £169m loss swung to a £187m profit before tax.
The Potential Catch
The abrdn share price jumped almost 5% in early trading, before quickly sliding back. It’s still cheap, after that flurry of excitement, but one thing worries me.
I recently checked FTSE 100-listed family-owned fund manager Schroders and it’s been going through a similarly rocky time. Its shares have crashed 24.12% in a year and 46.6% over three years. The stock currently trades at 13.64 times earnings while yielding 6.4% a year.
A lot of FTSE 100 financials are in a similar position. Wealth manager M&G and asset manager Legal & General Group immediately spring to mind. Both offer bumper yields while their shares struggle to make headway. Now here’s the thing. I hold both in my self-invested personal pension (SIPP).
I think the asset management sector is due a rerating, but it’s taking longer than I’d originally hoped. Given my exposure, I don’t need to add another high-yielding struggler to my SIPP. There’s an opportunity here, but I’m already chasing it. With regret, I’ll look elsewhere for my high-yield FTSE 250 recovery play. Plenty to choose from right now!
My Takeaway
The dividend yield offered by abrdn is attractive, and the company is certainly undervalued, but its recent performance and the challenges facing the asset management sector give me pause. While I think the sector is due for a rerating, I'm not convinced abrdn is the best place to invest for high yield just yet. I'll be watching this company closely, but for now, I'm looking elsewhere for my high-yield FTSE 250 recovery play.
