Should I buy Abrdn shares for the big dividend?

Abrdn (LON:ABN) shares offer a prospective dividend yield of almost 6%. Should Edward Sheldon buy the stock for the huge payout?

Edward Sheldon, CFA

Based in London, Edward is a freelance investment writer/analyst who has clients all over the world. Prior to launching his own investment writing business in 2017, he spent 15 years working in private wealth management and institutional asset management, both in the UK and in Australia. Edward is a passionate investor himself and manages his own global equity portfolio. This contains a mix of large-cap growth stocks, large-cap dividend stocks, and small-cap growth stocks. His stock-picking strategy combines ‘growth’, ‘quality’, and ‘thematic’ approaches. Edward holds a Commerce degree from the University of Melbourne, as well as the Investment Management Certificate (IMC) and the Chartered Financial Analyst (CFA) qualification. You can find him on Twitter @EdwardSheldon7

Published 11 October, 2021 10:14 am BST

| More on: ABDN

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.

Investing in dividend stocks can be a good way to generate passive income. Here in the UK, there are many dividend-paying shares that offer yields of 5% or higher.

One UK dividend stock that recently caught my eye is Abrdn (LSE: ABDN). Currently, it offers a prospective dividend yield of nearly 6%. Is this a stock I should consider for my own portfolio? Let’s take a look.

Abrdn: a good dividend stock?

Whenever I’m analyzing a dividend stock, one of the first things to look for is the quality of the underlying business. I like to invest in high-quality businesses that are industry leaders with strong competitive advantages. These kinds of businesses typically have stable profits which means they’re often reliable dividend payers.

Looking at Abrdn, I’m not convinced it’s a leader in its industry. When I think of major players in asset management, names such as BlackRock, Fidelity, and Vanguard spring to mind. Abrdn isn’t in the mix.

One thing I do know about Abrdn, having recently worked on a UK asset manager study, is that the company’s quite confusing to many people in the industry after its recent merger and rebranding activity. Previously, the company was known as Standard Life Aberdeen. However, it’s now called Abrdn and this confuses people.

The name alone has attracted a lot of criticism. Indeed, a recent survey from online comparison website Investing Reviews found that Abrdn was the ‘worst investment brand’ in the UK.

Turning to the financials, I’m not too impressed. In recent years, profitability has been very volatile. That’s not ideal from a dividend investing perspective.

Year	2015	2016	2017	2018	2019	2020	2021E
Net profit (£m)	1,423	368	699	830	266	833	300

To put these figures in perspective, here are the net profit figures for Impax Asset Management, which is a smaller player in the market that focuses on ESG investing. Over the same time period, profit has grown considerably.

Year	2015	2016	2017	2018	2019	2020	2021E
Net profit (£m)	3.63	4.18	7.67	11.4	15.9	13.7	35.7

Dividend analysis

As for the dividend, one thing that concerns me here is that projected dividend cover is low. This year, analysts expect Abrdn to pay out dividends of 14.6p per share. However, they only expect the group to generate earnings of 13.3p per share. In other words, dividends may be greater than earnings. This indicates the payout may not be sustainable.