abrdn (LSE: ABDN) shares are quite popular within the UK investment community, due to their high dividend yield. Last year, the asset manager paid out 14.6p per share in dividends to shareholders, which equates to a yield of around 9.1% at today’s share price.
I’ve been looking to buy some more dividend stocks recently, as dividends are extremely valuable when markets are choppy. Should I buy abrdn shares though? Let’s discuss.
Are the shares worth buying?
Looking at abrdn today, I can’t say I’m particularly excited about the stock. For starters, the company doesn’t have much momentum right now. For the first half of 2022, it reported:
Fee-based revenue of £696m, down 8% year on year
Adjusted operating profit of £115m, down 28% year on year
Adjusted diluted EPS of 3.7p, down 47% year on year
Assets under management of £508bn, down from £542bn at the end of 2021
Overall, performance in H1 was poor. Of course, things could improve if global stock markets begin to rise again. However, there’s no guarantee this will happen any time soon.
Secondly, the dividend looks at risk of a cut. As I mentioned earlier, it paid out dividends of 14.6p per share last year. However this year, earnings per share (EPS) are only expected to be 8.7p. This means that they won’t cover the dividend.
It’s worth noting that in the first half of the year, adjusted capital generation amounted to £107m. Yet the company paid out £154m in dividends for the period. In other words, the company didn’t generate enough capital to cover the dividend.
This leads me to believe the firm may have to reduce its dividend soon.
Lack of competitive advantage
Another issue for me is the lack of competitive advantage. abrdn operates in a very competitive industry and doesn’t appear to have an edge over its competitors. This is illustrated by the fact that for the five-year period to the end of June, just 34% of its equity funds outperformed their benchmarks. With that kind of performance, it could lose market share to passive management providers such as iShares.
Finally, the company’s shares aren’t cheap. Given that analysts expect EPS of 8.7p this year, the forward-looking price-to-earnings (P/E) ratio here is about 18.4. That’s significantly above the median FTSE 100 P/E ratio. So I don’t see much value on offer here right now.
My move now
Now I don’t want to sound too bearish on abrdn shares. One reason to be optimistic here is that the asset manager is shifting its focus to high growth areas such as real assets and alternatives. This is a smart move, to my mind.
Another reason to be optimistic is that a top-level insider (the CFO) bought some shares in the company recently.
However, overall, I don’t see enough appeal in the stock to buy it. All things considered, I think there are better dividend stocks to purchase for my portfolio today.
Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2022