The Standard Life share price: is now the time to buy this 8% yielder?

Standard Life Aberdeen plc (LON: SLA) could be cheap at this level, says Roland Head.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The share price of FTSE 100 asset manager Standard Life Aberdeen (LSE: SLA) has risen by more than 10% from the all-time lows seen earlier this year.

Today I’m asking whether it’s time to start buying this unloved stock, which offers a dividend yield of more than 8%.

I’ll also be taking a look at a smaller financial stock with a unique UK presence and a 7.8% dividend yield.

Don’t panic

Standard Life Aberdeen’s performance in 2018 didn’t do much to reassure nervous investors. Pre-tax profit fell from £660m to £650m, while assets under management dropped from £608.1m to £551.5m.

Happily for shareholders, the dividend was left almost unchanged at 21.3p per share, a level that management plans to maintain until the business returns to growth.

It’s all a bit of a worry, especially as the logic behind combining these two businesses was to benefit from economies of scale. However, I believe things may not be as bad as they seem.

Returning to growth?

For a mature business, growth often comes from cost-cutting as well as outright growth. In this case, a cost-cutting approach makes sense — both Standard Life and Aberdeen were big businesses in their own right when they merged.

The merger deal targeted £350m of cost savings, and so far £175m of these have been identified. According to the results, the company also delivered an extra £56m of savings last year in addition to this.

I’m confident that management will deliver in terms of cost-cutting. But to really reward shareholders, the company will need to deliver some underlying growth.

My view is big asset managers like SLA will remain relevant, despite changes to the fund management market. I expect growth to return gradually, after the shake-out that’s resulted from the two groups combining their offerings.

In the meantime, the group’s cash generation from fees is supported by cash from the gradual exit of the group’s insurance businesses. Although a dividend cut can’t be ruled out, I think Standard Aberdeen probably offers good value as an income buy at current levels.

Why I own this stock

One high yielder I own myself is mid-cap firm PayPoint (LSE: PAY). This company operates a network of bill payment terminals and point of sale systems that covers about 28,000 convenience stores, garage forecourts and newsagents across the UK.

The firm’s roots are in allowing customers to pay household bills in cash. But as this need declines, PayPoint is gradually transforming itself to become a financial hub for convenience retailers. Its latest system offers services such as card processing, stock management and the Collect+ parcel drop-off network.

Buy today?

For investors, this business poses a dilemma. On the one hand, it’s very profitable and generates a lot of spare cash. On the other hand, growth has been limited in recent years.

New boss Patrick Headon believes that the group’s extensive network — which is larger than the Post Office, supermarkets and banks — will support long-term growth. I can see the potential.

With the shares offering a forecast yield of 7.8%, I’m happy to hold, although I’d be looking for a dip below 1,000p to justify further buying.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head owns shares of PayPoint. The Motley Fool UK owns shares of PayPoint. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »