In an economic environment causing many companies to slash dividends, it’s great to learn that Ashmore (LSE: ASHM) has just raised its shareholder payment by 2%. I think the directors’ move to increase the payment signals strength in the business. To me, it’s a FTSE share to buy.
Why Ashmore is a FTSE share to buy
The company earns its living as an emerging markets asset manager. As such, it’s an area of the market that I wouldn’t dare stray into on my own because I think it requires specialist knowledge to execute successfully. Indeed, Ashmore has an international team of experts in the field all sharing knowledge daily.
However, although I wouldn’t try to pick my own investments in emerging markets, I recognise the benefits of diversifying my portfolio geographically. Exposure to emerging markets strikes me as a good thing. And an investment in Ashmore would also give me diversification into alternative assets because the company uses a variety of strategies. For example, it invests in equities, local currencies, and various debt instruments, such as corporate, external and blended, among other things.
Meanwhile, the share price suffered in the Covid collapse of the spring. In February, the stock was close to 570p, but today, the shares change hands near 387p. And today’s full-year results report reveals that at least some of that down-move is rational. For example, Assets under Management (AuM) declined by 9% to just under $84bn compared to the previous year.
Many positives
However, the report contains many positive numbers too. Adjusted net revenue increased 5% year-on-year and diluted earnings per share moved 3% higher. The company reckons the positive results were driven by 7% growth in the net management fees earned. On top of that, lower operating costs boosted EBITDA by 10% and led to a higher margin of 68%. It seems that Ashmore is squeezing more profit from operations and offsetting the effects of the decline in AuM.
There was some good news on AuM though. The company saw flat net inflows over the year rather than a decline. Investments by existing and new institutional clients offset redemptions by mutual funds. It looks like Covid-19 prompted some of those redemptions and caused a challenging third quarter for the company. Indeed, there was a negative market performance of $8.1bn because of the pandemic, which appears to account for the reduction in AuM.
However, the directors reckon the company is investing well during the market recovery we are seeing and that could lead to a rebuilding of the figure for AuM over time. I think the directors’ decision to increase the total dividend for the year underlines their confidence in the outlook.
With the share price at 387p, the forward-looking earnings multiple for the current trading year to June 2021 is just below 16 and the anticipated dividend yield is around 4.4%. I reckon the stock would make a useful long-term hold in my portfolio.
