Picture supply: Getty Photos
Ashmore Group‘s (LSE:ASHM) a comparatively unknown earnings inventory that tends to maintain a low profile. In 2024, it solely made 20 inventory alternate bulletins. If the necessary releases about shareholdings within the firm — and adjustments in administrators — are eliminated, the quantity falls to 9. It actually does fly beneath the radar.
What does it do?
The corporate makes its cash by charging charges for managing investments in over 70 rising markets. Of the belongings it takes care of — primarily equities and stuck earnings securities — 96% come from what are described as “establishments”. These embrace central banks and pension funds.
Ashmore claims these markets have higher development potential than extra developed ones. In 2025, these economies are anticipated to have a 2.6% greater development charge. The corporate argues that the world’s estimated $100trn of belongings are underweight in rising markets. It claims the creating world gives higher worth than, for instance, US tech shares.
The corporate says it has a “distinctive” enterprise mannequin. There’s a “no star tradition” with its 100+ funding professionals judged on efficiency slightly than fame. The corporate additionally claims its prices are properly managed, which implies its operations are simply scalable. And it has a robust steadiness sheet with no debt.
For the 12 months ended 30 June 2024 (FY24), the corporate generated income of £187.8m. Its earnings per share (EPS) was 13.6p. This implies the inventory at 7 February trades on a traditionally low a number of of 12.4.
And the corporate’s one of the crucial dependable dividend payers round. It’s maintained a payout of 16.9p for the previous 5 fiscal years. Earlier than that – from FY15 to FY19 – it paid 16.65p annually.
Primarily based on dividends over the previous 12 months, it’s the third highest-yielding inventory within the FTSE 350. It presently gives a yield of 10.1%.
A worrying long-term pattern
Nonetheless, regardless of these positives, I’m not going to spend money on the corporate. That’s as a result of its belongings beneath administration (AuM) have been steadily declining lately. On the finish of FY20, it was accountable for $83.6bn of investments. 4 years later, this was $49.3bn. And the corporate’s newest outcomes reveals an additional fall – at 31 December – to $48.5bn.
Ashmore blames this on a pointy rise in inflation, a speedy tightening of financial coverage, international inflation and the pandemic. Regardless of the causes, a fall in its AuM’s going to place stress on its earnings and, in the end, might threaten its dividend.
Additionally, if I’m sincere, the one purpose this inventory caught my consideration is due to its beneficiant yield. Flip the clock again 5 years, its dividend was the identical as it’s immediately. But it was yielding a extra modest 3%.
The rationale for the spectacular yield’s attributable to a fall within the firm’s share worth slightly than an increase in its payout.
The discount in shopper funds is clearly a priority for buyers. And having a dividend greater than its EPS isn’t sustainable. Lately, it’s been in a position to keep its payout by promoting a few of its personal comparatively modest funding portfolio.
For these causes, I don’t need to embrace Ashmore Group’s inventory in my portfolio. Nonetheless, my evaluation of the corporate is a helpful reminder that apparently beneficiant dividend yields needs to be handled with warning.
