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The nation’s greatest dividend payers, by dint of their dimension, are FTSE 100 corporations. However that doesn’t imply that FTSE 250 corporations don’t spend a good bit of money on paying dividends to shareholders.
Some FTSE 250 shares have enticing dividend yields. For instance, one which has a widely known and well-established enterprise presently yields 9.5%.
Investing £1,000 at the moment and compounding it at 9.5% yearly for a decade, it could have already got grown to £2,478.
That type of (potential) dividend gold mine is tempting for me – however is that this the precise share for me to purchase to attempt to obtain it?
Massive, confirmed enterprise
The FTSE 250 firm is monetary service agency abrdn (LSE: ABDN).
Its model could have a daft spelling, however it’s well-established and well-known. The agency additionally owns digital platform ii (abrdn doesn’t like mixing vowels and consonants, it appears). So this can be a large enterprise with a big buyer base and deep monetary markets expertise.
How large?
It ended final yr with over half a trillion kilos of belongings beneath administration and administration.
That was larger than the extent on the finish of September. I see that as encouraging, as buyers pulling more cash out than they put in has generally been a problem for abrdn in recent times. I believe it continues to be a threat.
Nonetheless, whereas its business efficiency has lengthy been inconsistent, abrdn is what I might regard as a confirmed enterprise. It made a revenue of £171m within the first half of final yr.
Dividend is tempting, however will it final?
However abrdn faces a variety of challenges, from sturdy competitors to the potential that its cost-cutting programme will sap workers morale.
The dividend is enticing. But it surely has been held regular since 2020, when it was reduce by a 3rd. Previous efficiency just isn’t essentially a information to what is going to occur in future. In any case, even when the dividend stays on the identical degree, the present yield can be enticing to me.
My concern is the chance for an additional reduce sooner or later. The agency made simply £12m in its most up-to-date full-year outcomes. That follows a lack of over half a billion pound the prior yr.
To maintain its dividend, abrdn must throw off sufficient spare money to pay for it. Its earnings efficiency over the previous a number of years doesn’t fill me with confidence it is going to do this with sufficient regularity for me to sleep comfortably as an investor.
Clearly, the corporate is making an attempt to reshape itself.
It has been slicing prices, whereas utilizing its digital platforms to attempt to attraction to a wider vary of potential purchasers than its conventional buyer base. That technique might work, by which case earnings could develop.
However the enterprise has lengthy been an unpredictable performer. Among the causes for that lie exterior its management. For instance, a weak economic system might result in buyers placing much less cash into the markets, hurting funding managers’ earnings.
The dangers right here don’t sit comfortably with me, so for now I cannot be shopping for abrdn shares.
