Asset manager abrdn (LSE:ABDN) carries one of the largest dividend yields on the London Stock Exchange. Based on the City’s dividend forecasts, the yield sits at 8.2%, well ahead of the FTSE 100‘s 3.8% forward average.
Investor appetite for the company has risen on Wednesday following the release of fresh trading news. At 177.8p per share, abrdn’s share price has risen 3% in midweek business.
However, its shares are still almost a fifth cheaper than they were before its catastrophic half-year update in August. In this article I’m considering whether abrdn is a top recovery stock for me to buy to also supercharge my dividend income.
Outflows double
The financial services giant has struggled of late as difficult economic conditions have hampered investor appetite. Today’s latest update shows that the pressure is showing little signs of relenting.
A hefty £12.4bn was withdrawn from abrdn’s products during the six months to December, that latest release shows. This was more than double the net outflows of £5.2bn recorded in the first half of 2023.
As a result, assets under management and administration (AUMA) dropped to £494.9bn at the year’s end from £495.7bn in June. This was also down from £500bn at the start of last year.
abrdn commented that “market conditions have remained challenging for our mix of business,” adding that “high inflation and geopolitical uncertainty continued the trend to cash and de-risking of client portfolios“.
But the business added that it is taking steps to address “the changing dynamics and challenges within traditional asset management“. As part of these efforts it announced it would cut 10% of its workforce, or 500 roles, in a bid to save a further £150m by 2025.
Fragile forecasts
While cost cutting seems prudent in the current environment, these measures are in my opinion overshadowed by that sharp acceleration in net outflows in recent months.
Things could get a whole lot worse, too. As worries over global growth and high interest rates linger, asset managers face further client withdrawals. The growing geopolitical crisis in the Middle East adds another layer of danger, too.
This means that those current dividend forecasts for abrdn shares are also in jeopardy. The company has history when it comes to cutting payouts, and in 2020 it reduced shareholder payouts from 21.6p per share to 14.6p.
It has kept dividends at this level since then. And City brokers are expecting rewards to remain locked at 14.6p per share in 2023 and 2024.
The problem is that analysts also think earnings will continue to fall this year. And consequently the predicted dividend comes in above forecasted earnings per share of 11.8p per share.
On the plus side, abrdn has a solid balance sheet it can use to keep dividends frozen. This allowed it to announce a further £150m share buyback programme when it released those half-year numbers in August.
Here’s what I’m doing now
Yet I believe abrdn may be forced to tighten the pursestrings in the current climate and reduce cash returns. So I’m not planning to buy its shares despite those massive dividend yields for 2024.
I’d rather find other FTSE 100 and FTSE 250 stocks to buy for passive income.
