Picture supply: Getty Pictures
It may be tempting when searching for dividends simply to give attention to the excessive yields within the flagship FTSE 100 index. Notable examples right here embody Phoenix Group’s 9.4% and the ten.2% at M&G. However the FTSE 250 index additionally incorporates some high-yield shares of word.
One is asset supervisor aberdeen group (LSE: ABDN), with its 9.8% yield.
The dividend historical past right here just isn’t thrilling. Thedividend per share has been held flat for years after the latest minimize.
However previous efficiency just isn’t essentially a information to what’s going to occur in future. If the FTSE 250 agency merely maintains its dividend per share with out rising it, its potential yield is 9.8%. That actually seems engaging to me.
Promising indicators of restoration
I’ve been eyeing aberdeen shares as a possible addition to my portfolio for a while. However I’ve lengthy been involved in regards to the somewhat lacklustre, inconsistent enterprise efficiency and what it means for the dividend.
In spite of everything, as long-term aberdeen shareholders know solely too effectively, no dividend is assured to final.
However final yr’s efficiency supplied some indicators of a enterprise which may be on the mend. Internet consumer fund flows had been nonetheless damaging, however a lot smaller than the prior yr. Nonetheless, I see a threat that if buyers proceed to withdraw greater than they put in, it may harm aberdeen’s long-term profitability.
Internet capital technology was up by round a 3rd, which I see as a optimistic signal for sustaining the dividend. Diluted earnings per share additionally moved up strongly.
Nonetheless, the purpose about outflows issues me. It helps clarify why adjusted working internet income confirmed a 6% year-on-year decline.
Not out of the woods but
So, though the outcomes contained some promising indicators of progress, I believe administration has work left to do.
One of many key duties is reversing the online move of funds, in order that aberdeen is coping with bigger not smaller quantities of cash total. I see that as useful for income over the long term.
If the FTSE 250 enterprise can enhance its internet capital technology, that can assist enhance dividend protection. I believe that in flip is also good for the share worth, which has fallen 21% over the previous 5 years. That contrasts very badly to a 39% enhance for the FTSE 250 index total throughout that interval.
aberdeen expects to extend internet capital technology to round £300m subsequent yr, a rise of roughly 1 / 4 from 2024.
I really feel more and more assured that aberdeen will preserve its dividend. Certainly, in its outcomes the corporate’s chief govt mentioned that its technique must allow aberdeen “to take care of the historic dividend per share from materially greater, and sustainable capital technology.”
However whereas the enterprise efficiency appears to be shifting in the suitable path, I would love extra proof that the shift is sustained and sustainable.
So, as a substitute of shopping for now, I’ll proceed to maintain aberdeen on my watchlist. I’ll look to see whether or not it is ready to preserve excessive internet capital technology and in addition transfer from damaging to optimistic internet fund flows.
