The stars have certainly not aligned for fund manager Jupiter (LSE: JUP).The firm’s shares have crashed 57% in the past year. There has at least been the consolation of the Jupiter dividend, which currently yields a mouth-watering 14%.
Today brought good news for the dividend — but also potentially bad news.
Bad performance
Jupiter’s interim results were released this morning and they make for horrible reading overall.
But one piece of good news was that the interim dividend is being held at the same level as last year. That is 7.9p per share. It is a substantial amount given that the shares currently trade at £1.25.
The bad news came in the form of Jupiter’s business performance. It ended last year weakly and things just seem to be going from bad to worse. To its shame, the company did not even include a comparative figure for last year in its very first headline, which simply noted that, “assets under management (AUM) ended the period at £48.8bn” The equivalent figure last year was in fact a record high of £60.3bn.
That 19% fall in assets under management is partly due to changing market valuations. But it also reflects clients pulling money out of Jupiter funds. The past six months saw net outflows of £2.3bn. All three areas of Jupiter’s business reported net outflows for the period, aside from any impact due to market returns.
Could the Jupiter dividend be cut?
My concern here is that if Jupiter does not fix its business then the dividend could be in danger.
Underlying earnings per share in the first half of 4.2p and basic earnings per share of 2.6p are not enough to cover the interim dividend.
To maintain its dividend rather than cut it, I think Jupiter urgently needs to improve its business performance. But as it rightly pointed out, the outlook for its sector as a whole looks quite unpromising at the moment. A recently announced change in Jupiter’s leadership could bring in new blood.
I think the firm has strong assets, such as its well-known brand and existing customer base. But it needs to put them to work harder and faster than it has been doing and attract new clients.
In the results, Jupiter said, “it is clear that we are in a very challenging environment for asset managers. With this backdrop in mind, we remain focused on taking a disciplined approach to our cost base”. But its well-paid executives are given big salaries precisely to deal with challenging environments. Cost control is fine but businesses cannot cut their way to growth. What I am looking for Jupiter to do urgently is to stabilise net outflows then return to growth. That could help boost earnings and support the dividend.
My move
I will be happy to receive the Jupiter dividend announced today. But I am concerned that the business is doing so weakly and Jupiter’s leadership seems not to be doing as much as I would like to fix that.
Given the potential of the business and juicy yield, I will hold my shares. But I recognise that the dividend may be cut if performance remains weak, perhaps as soon as the annual results.