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Like a lot of investors, I am happy getting some passive income in the form of dividends from shares I own. So the 10.5% dividend yield currently offered by financial services firm abrdn (LSE: ABDN) certainly grabs my interest. But the daftly named firm has lost more than just its vowels in recent years. Indeed, the abrdn share price is now 56% below where it was five years ago.
On one hand, that has potentially made it more attractive for me as a potential investor. A lower share price has pushed up the dividend yield.
It also offers me a lower purchase cost, meaning that if the share bounces back I might be able to earn some sizeable capital gains.
On the other hand, a cheap-looking share can always get cheaper. Just because the abrdn share price has fallen a long way does not mean it may not keep on heading downwards.
Some things I like about the share
Let me start with what I see as some positive aspects of the investment case.
Asset management is a huge business area and likely to stay that way for the foreseeable future. So it can be lucrative for firms engaged in it.
abrdn has strengths when it comes to competing. Even after its rebrand, it has well-known brands, a large customer base, and deep market understanding. It has pushed into digital investment tools in recent years in a way I think helps set it apart from some more traditionally minded competitors in an evolving market.
At the end of the third quarter, it had over half a trillion pounds of assets under management. Not only is that a huge number, it represented 2% growth compared to the start of the year.
Mixed track record
Is the dividend safe?
None is ever guaranteed. Last year’s payout per share was held flat at 14.6p. That was not even covered by adjusted diluted earnings per share, let alone unadjusted ones.
On top of that, abrdn’s dividend track record includes multiple cuts (albeit from when the share traded under a different name).
Past performance is not necessarily a guide to what will happen in future. However, when a company has disappointed investors in the past and continues to perform in an uneven way, I would ideally like to see compelling evidence that the tide has firmly turned before investing.
I reckon the abrdn share price remains where it is for a reason. I believe it still needs to convince the City that it is on a firm path to consistently stronger business performance.
The company has strengths and has also been proactively taking steps to try and overcome some of its past weaknesses. That is encouraging.
However, the proof is in the pudding and I am not yet convinced that the business is on a firm enough long-term footing to feel confident that the dividend will be maintained, let alone ever start growing again.
So for now, my plan is to continue watching the firm’s performance without yet buying this high-yield share.
