One stock I’m currently considering adding to my holdings to boost my passive income stream is Abrdn (LSE:ABDN). Here’s why.
Investment business
Abrdn was better known as Standard Life Aberdeen before the sale of Standard Life to Phoenix Group Holdings last year. It is an investment company that manages global assets including equities, real estate, and private markets. Abrdn is one of the largest active asset managers in the UK.
So what is the current state of play with the Abrdn share price? Well, as I write, the shares are trading for 193p. At this time last year, the shares were trading for 272p, which is a 29% drop over a 12-month period. Abrdn shares have declined 23% since February, when the stock market correction occurred due to macroeconomic and geopolitical factors.
With the Abrdn share price falling, its dividend yield still enticing, and recent positive results, should I add the shares to my holdings?
Passive income stocks have risks
Abrdn has struggled in recent years and has seen investors remove their funds. This has impacted performance and the share price. I do think the original merger between Aberdeen Asset Management and Standard Life in 2017, and the eventual sale of Standard Life last year, has contributed to the poor performance, however. I plan to keep a keen eye on future results to see if this latest iteration of the business can perform consistently.
Many believe Abrdn’s yield and payout is not sustainable as it possesses a coverage ratio of less than 1 in 2021, which is relatively low. Abrdn is looking to increase coverage before it increases any payout. This may mean dividends could be cancelled in the interim as it seeks to boost coverage, therefore affecting any passive income I hope to make.
Should I buy Abrdn shares?
Abrdn shares look cheap on paper. The shares are currently on a price-to-earnings ratio of just four. The FTSE 100 average is closer to 15, which means Abrdn shares look like good value for money.
As a passive income seeker I want to focus on the dividend yield, which currently stands at over 7%. It is worth mentioning that the FTSE 100 average dividend yield is between 3% and 4% which means Abrdn’s yield is nearly double this level.
So the shares look cheap and the yield is attractive enough for me to consider adding the shares to my holdings. But what about performance? Afterall, performance is what determines shareholder returns. Well the good news is Abrdn may be turning a corner, in my opinion. Outflow of investor money significantly decreased in 2021 to £6.2bn, compared to a mammoth £29bn in 2020. More importantly, profit rose by 17% to £995m. This was Abrdn’s best performance in FIVE years.
My investing style is to buy and hold for the long term. I don’t consider myself a major risk taker but every now and then I like to take a chance and buy a stock I may not usually. However, I won’t be risking my hard-earned money on Abrdn shares just now. I want to see more consistent performance since the demerger and proof the dividend is sustainable. I believe there are better passive income stocks for me out there.