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The nation’s largest dividend payers, by dint of their measurement, 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 well 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 might have already got grown to £2,478.
That form of (potential) dividend gold mine is tempting for me – however is that this the suitable share for me to purchase to try to obtain it?
Giant, 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 massive enterprise with a big buyer base and deep monetary markets expertise.
How massive?
It ended final yr with over half a trillion kilos of property underneath administration and administration.
That was greater 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 lately. I feel it continues to be a threat.
Nonetheless, whereas its industrial efficiency has lengthy been inconsistent, abrdn is what I’d 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 robust competitors to the potential that its cost-cutting programme will sap workers morale.
The dividend is enticing. Nevertheless it has been held regular since 2020, when it was reduce by a 3rd. Previous efficiency isn’t essentially a information to what is going to occur in future. In any case, even when the dividend stays on the identical stage, the present yield can be enticing to me.
My concern is the chance for an additional reduce in some unspecified time in the future. 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 try 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 chopping prices, whereas utilizing its digital platforms to try to enchantment to a wider vary of potential shoppers than its conventional buyer base. That technique may work, by which case income could develop.
However the enterprise has lengthy been an unpredictable performer. A number of the causes for that lie outdoors its management. For instance, a weak financial system may result in buyers placing much less cash into the markets, hurting funding managers’ income.
The dangers right here don’t sit comfortably with me, so for now I cannot be shopping for abrdn shares.
