The directors just authorised this UK stock’s dividend at last year’s level and issued an optimistic outlook statement. That means it’s now yielding almost 10% and it’s one I’m keen to research more with a view to buying.
The company in question is Liontrust Asset Management (LSE: LIO). As the name suggests, it operates as a specialist fund manager.
The back-story for the sector is that managed funds in general have endured a tough time because of negative sentiment among investors. That’s led to a steady leak of people pulling money out of managed funds.
Poor figures
So today’s (26 June) full-year results report from Liontrust looks like a bit of a slow-motion car crash of negative percentage figures where we’d all like to see positive ones.
Long-suffering shareholders have endured a terrible time as the chart shows:
But there’s a note of optimism in the outlook statement. The directors expect sentiment in the investing community to improve, especially if interest rates start to ease back.
If rates fall as hoped, it’s likely the environment for businesses, stocks and shares will improve. That may mean we’ll see an enduring period of prosperity and a steady bull market ahead. Although such positive outcomes are not certain, of course.
Nevertheless, as mentioned, the directors backed up their optimism by keeping that all-important shareholder dividend at last year’s level. I reckon that speaks well of the quality and value in the underlying business.
If they can repeat the trick for the current trading year to March 2025 as analysts predict, the forward-looking yield is now compelling – at least to me. With the share price near 732p, it’s a whisker above 9.8%.
Value and opportunity
However, to get that dividend income flowing into my portfolio, I’d need to embrace the risks and uncertainties here. One of them is that the company is small with a market capitalisation of just below £488m.
Another risk is the possibility that negative investor sentiment may never return for managed funds. It’s well-known that many – perhaps most – managed funds tend to underperform their benchmarks. So, there’s a growing movement of investors opting for low-cost, mechanically managed tracker funds instead. On top of that, the internet has made do-it-yourself stock-picking and investing accessible and cost-effective for all.
By 31 March 2024, the firm’s indicator of ‘assets under management and advice’ (AuMA) decreased by 11.5% compared to the prior year.
Nevertheless, chief executive John Ions said Liontrust has an expanding and “compelling” range of investment teams with robust processes. The brand is “strong”, and Ions is confident the business has a platform capable of delivering growth.
Value-style opportunities like this never look that great when examining the figures in isolation. But that’s why the value often arises in the first place.
Sometimes, it’s darkest just before the dawn. In this case, we may see the business recovering in the months and years ahead. So I’m rolling up my sleeves and getting stuck in with further and deeper research.
