If I wanted an easy source of passive income, then buying shares could be a great investment. One option is to open a position in an income stock, so I’d receive regular payments from the company. Right now, I’ve been looking at abrdn (LSE: ABDN) shares and their splendid dividend yield. Is the stock a buy for me?
A £52,517 return on dividends
abrdn is based in Edinburgh and offers investment and asset-management services worldwide. It’s a huge company that manages nearly £400bn in financial assets. That’s a mature industry, so there’s not too much room for growth.
What that means for me is that were I to buy shares in the business, my returns would come mostly from the payments back to shareholders.
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Those payments currently come in at an annual yield of 6.3%. This means if I held £10,000 worth of the shares, I would expect to receive £630 over the course of a year in dividends.
But that’s just one year. The great thing about earning interest is how it builds up over time, and it’s easy to calculate.
That same £10,000 stake over a 30-year timeframe would snowball into £62,517 at a consistent 6.3% dividend.
I’d be very happy with over six times my initial stake back, especially when I’d earn £52,517 in payments only through dividends. And there may be share price growth on top of that.
But before I get carried away and buy loads of abrdn shares for my retirement pot, I must remember the risks too. Dividends aren’t guaranteed. So I should do my homework on any company if I want my shares to give me good returns far into the future.
Dividend cuts and a questionable name change
As an asset manager, the success of abrdn as a company follows the rises and falls of the financial markets. And with a stock market correction last year, it’s been a rocky ride. Looking at the latest earnings, I can see operating profit fell from £323m to £263m.
Going back further, the 2017 merger between Aberdeen Asset Management and Standard Life preceded a 50% drop in the share price. The problems continued when the company cut its dividend in the years leading up to the pandemic. That’s bad news for me, because the potential 6.3% dividend doesn’t look so reliable now.
To be fair, it’s not all doom and gloom. The recent £1.5bn acquisition of investment platform Interactive Investor seems like a shrewd move and £1.7bn of cash assets mean the firm won’t struggle to fulfil dividend payments in the near future. But is that enough for me to buy in at the moment?
Am I buying?
All in all, it seems the high dividend payout I’d get if I held abrdn stock is papering over the cracks. I’m interested in shares of companies that will offer me excellent value over the long term, ideally ones that I can just forget about.
And with British companies looking sorely undervalued right now, I think I can find great income-building stocks elsewhere on the market.
