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Like many investors, I'm happy to earn passive income in the form of dividends from the stocks I own. Thus, the 10.5% dividend yield currently offered by the financial services company open (LSE: ABDN) certainly captures my interest. But the company with such a ridiculous name has lost more than just its members in recent years. In fact, abrdn's share price is now 56% lower than it was five years ago.
On the one hand, that has potentially made it more attractive to me as a potential investor. A lower share price has lifted the dividend yield.
It also gives me a lower purchase cost, meaning that if the stock recovers, I could make considerable capital gains.
On the other hand, a stock that looks cheap can always get cheaper. Just because Abrdn's share price has fallen a lot doesn't mean it can't continue to fall.
Some things I like to share
Let me start with what I consider to be some positive aspects of the investment case.
Asset management is a huge area of business and is likely to remain so for the foreseeable future. Therefore, it can be lucrative for companies that are dedicated to it.
abrdn has strong points when it comes to competing. Even after its rebranding, it has well-known brands, a large customer base, and deep market knowledge. In recent years, it has dabbled in digital investment tools in a way that I think helps differentiate itself from some more traditionally-minded competitors in an evolving market.
At the end of the third quarter, he had more than half billion pounds of assets under management. Not only is this a huge number, but it represented a 2% growth compared to the beginning of the year.
Mixed track record
Is the dividend safe?
None are ever guaranteed. Last year's pay per share was flat at 14.6p. That wasn't even covered by adjusted diluted earnings per share, let alone unadjusted ones.
On top of that, abrdn's dividend history includes multiple cuts (albeit since the stock was trading under a different name).
Past performance is not necessarily a guide to what will happen in the future. However, when a company has disappointed investors in the past and continues to perform unevenly, you would ideally want to see compelling evidence that the tide has firmly turned before investing.
I think Abrdn's share price stays where it is for a reason. I believe the City still needs to be convinced that it is on a solid path to consistently stronger business performance.
The company has strengths and has also been proactively taking steps to try to overcome some of its past weaknesses. That's encouraging.
However, the proof is in the pudding and I'm still not convinced that the business is on firm enough long-term footing to have confidence that the dividend will be maintained, let alone start growing again.
For now, my plan is to continue watching the company's performance without buying this high-yielding stock just yet.
