What comes to mind when you hear of a 17% dividend yield? Excitement? Disbelief? Curiosity? Greed? That is the yield on offer right now at fund manager Jupiter (LSE: JUP). But can it go on, or is the Jupiter dividend in danger of being cut?
Jupiter share price rollercoaster
This is more than an academic question to me, as Jupiter is a significant holding in my portfolio. The Jupiter share price now trades for pennies and has lost 62% of its value over the past year.
Indeed, that helps to explain why the dividend yield is at today’s dizzying level. The payout has been held flat, but a collapsing share price has pushed the yield upwards.
Clearly, this has not come out of nowhere. Jupiter has been facing a litany of woes that could signal its business is worth less than previously thought. Net outflow of client funds? Check. Management upheaval? Check. Exposure to a fund investing in unlisted companies that has raised questions over valuations? Check.
Is there smoke without fire? In Jupiter’s case, the business looks like it has been struggling but I am not sure that means it is in fundamentally bad shape.
While client net outflows in the first half of £3.6bn look terrible, it is also worth remembering that the firm ended the same period last year with funds at an all-time high. The company has a strong brand I think it could use to attract new investors. Although Jupiter is facing some significant challenges, I do not necessarily think it is holed below the waterline.
Risk and reward
If that turns out to be true, the current opportunity to pick up Jupiter shares for pennies could turn out to be very lucrative. That is why I have been loading up on Jupiter shares.
The firm has doggedly maintained its ordinary dividend for years, including at this year’s interim results stage. If the business performance continues to be weak, it may be forced to cut it – although with a 17% yield, even a sizeable reduction could still leave a chunky payout.
But if the business recovers, the firm may be able to maintain its dividend. In that case, the current Jupiter share price could be the sort of thing I would look back on in a year as a golden buying opportunity.
Where next for the Jupiter dividend
In reality though I already have a lot of Jupiter shares. I always try to ensure that no one company is too big a part of my portfolio. It is for situations just like this one that can look so tempting to me as an investor that I adopt this risk management approach. So I will not be buying any more shares, but will hold on to the ones I have.
A lot of smart money seems to have been turning against Jupiter’s prospects, which explains the heavy share price fall. I do see real risks here, but also potentially great rewards. Jupiter’s dividend may be sustainable, if business recovers. Otherwise, the payout is clearly at risk.
I am alert to the risks but am holding on in the hope of recovery.