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Invest a large amount of money in a financial stock in the hope of earning a second income? In this economy, with the sector under pressure? I’m crazy?
Well, if you were talking about money you might need in the next five years, then yes, I think it would be a big risk.
We could remain stuck for a few years with high inflation and high interest rates. And banks and financial stocks could remain lower.
Decades
But I’m thinking about retirement money, and many of today’s investors are still decades away from getting it. In the long term, financial stocks seem like sources of income to me.
But wait, I haven’t said what stocks I’m thinking about.
I have looked at some FTSE 100 companies so far. But today I leave the upper index and go into the FTSE 250. And I like what I see in Ashmore Group (LSE: ASHM).
In particular, I like the look of its expected dividend yield of 9.8%. And the fact that broker forecasts suggest it will remain strong at least through 2026 is a help.
Uncertain
Now, the forecasts are uncertain at best. And runners often seem to be the last to notice when things start to go wrong. Therefore, there is a risk that large cash payments will not be made.
Earnings fell in 2023 and look like they will stay down for a couple of years. This is not surprising when we examine Ashmore’s business.
The firm manages emerging market funds. A global pandemic followed by economic chaos is, to put it mildly, perhaps not the best time for this.
And among my fellow Motley Fool writers, not everyone is optimistic about Ashmore. Still, as we say, we firmly believe that considering a diverse range of knowledge makes us better investors.
Share price
The 48% drop in the share price over the last five years is the cause of the current high dividend yield. And he shows that City investors really don’t like Ashmore risk at the moment.
But I think that if the company can maintain its dividend over the next few tough years, there’s a good chance it can emerge with a new winning streak.
And at last count, Ashmore had bags of cash on its books to keep paying.
And if?
So, there’s a lot of risk here. But emerging markets tend to be cyclical and I think we could now be near the end of the bearish cycle.
I may be wrong, but what if I’m right? How long will it take me to earn my second income of $10k a year from Ashmore’s 9.8% dividends?
You would need a pot of around £102,000, which would be equivalent to around 57,000 shares. And she could do it in 20 years, on just £150 a month.
contrary
Would you bet real money on Ashmore?
As part of a balanced portfolio, yes, sure. In fact, actions bring out the opposite in me. And it’s on my wanted list for a future purchase.
