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It may be tempting when on the lookout for dividends simply to deal with 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 comprises some high-yield shares of observe.
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 newest 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 growing it, its potential yield is 9.8%. That actually seems to be 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 fairly lacklustre, inconsistent enterprise efficiency and what it means for the dividend.
In spite of everything, as long-term aberdeen shareholders know solely too nicely, no dividend is assured to final.
However final 12 months’s efficiency supplied some indicators of a enterprise which may be on the mend. Web consumer fund flows had been nonetheless adverse, however a lot smaller than the prior 12 months. Nonetheless, I see a threat that if buyers proceed to withdraw greater than they put in, it may damage aberdeen’s long-term profitability.
Web 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 web 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 feel administration has work left to do.
One of many key duties is reversing the online circulate 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 web capital technology, that can assist enhance dividend protection. I feel that in flip may be good for the share value, 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 web capital technology to round £300m subsequent 12 months, 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 government stated that its technique must allow aberdeen “to take care of the historic dividend per share from materially larger, and sustainable capital technology.”
However whereas the enterprise efficiency appears to be shifting in the fitting course, 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 web capital technology and in addition transfer from adverse to optimistic web fund flows.
