The country’s biggest dividend payers, by dint of their size, are FTSE 100 firms. But that does not mean that FTSE 250 firms do not spend a fair bit of cash on paying dividends to shareholders.
Some FTSE 250 shares have attractive dividend yields. For example, one that has a well-known and well-established business currently yields 9.5%.
Investing £1,000 today and compounding it at 9.5% annually for a decade, it would already have grown to £2,478.
Should you invest £1,000 in Abrdn right now?
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That sort of (potential) dividend gold mine is tempting for me – but is this the right share for me to buy to try and achieve it?
Large, proven business
The FTSE 250 company is financial service firm abrdn (LSE: ABDN).
Its brand may have a daft spelling, but it is well-established and well known. The firm also owns digital platform ii (abrdn does not like mixing vowels and consonants, it seems). So this is a big business with a large customer base and deep financial markets experience.
How big?
It ended last year with over half a trillion pounds of assets under management and administration.
That was higher than the level at the end of September. I see that as encouraging, as investors pulling more money out than they put in has sometimes been a challenge for abrdn in recent years. I think it continues to be a risk.
Still, while its commercial performance has long been inconsistent, abrdn is what I would regard as a proven business. It made a profit of £171m in the first half of last year.
Dividend is tempting, but will it last?
But abrdn faces a range of challenges, from strong competition to the potential that its cost-cutting programme will sap staff morale.
The dividend is attractive. But it has been held steady since 2020, when it was cut by a third. Past performance is not necessarily a guide to what will happen in future. In any case, even if the dividend remains at the same level, the current yield would be attractive to me.
My concern is the risk for another cut at some point. The firm made just £12m in its most recent full-year results. That follows a loss of over half a billion pound the prior year.
To sustain its dividend, abrdn needs to throw off enough spare cash to pay for it. Its earnings performance over the past several years does not fill me with confidence it will do that with enough regularity for me to sleep comfortably as an investor.
Clearly, the company is trying to reshape itself.
It has been cutting costs, while using its digital platforms to try and appeal to a wider range of potential clients than its traditional customer base. That strategy could work, in which case profits may grow.
But the business has long been an unpredictable performer. Some of the reasons for that lie outside its control. For example, a weak economy could lead to investors putting less money into the markets, hurting investment managers’ profits.
The risks here do not sit comfortably with me, so for now I will not be buying abrdn shares.
