Abrdn (LSE:ABDN) shares have had a difficult year. The asset manager began 2022 buoyed by improving financials only to be hit by sky-high inflation and the worsening economic outlook of the UK. 

In the first half (H1) of 2022, the firm recorded a total pre-tax loss of £320m. Fee-based revenue dropped 8% to £696m and adjusted operating profits fell 28% to £115m. 

As a result, Abrdn shares are down 47% in 12 months and 42% so far in 2022.

This prompted a demotion from the FTSE 100 in September and the investment firm is now a part of the mid-cap FTSE 250 index. 

But things could be changing. Abrdn shares are up 8% in the last week. Could this beaten-down stock present a mixture of growth and value, factoring in this historic decline and the 10.7% dividend yield? Let’s find out. 

Cheap or a value trap?

Most shares that fall nearly 50% in a year will appear cheap on paper. Looking at the performance of Abrdn shares performance over time, it is clear that the firm has declined steadily since hitting an all-time high of 571p in 2015.

The company has undergone many changes over the last decade, including a merger and subsequent sale of the Standard Life business, several high-profile boardroom changes, and a rebranding effort.

Most investment firms are struggling at the moment. The larger economic collapse in the UK has caused trading volumes to drop. 

This marketwide pullback caused Abrdn’s assets under management (AUM) to fall £34bn in H1 2022. Despite this, the company has managed to hold on to its position as one of the largest asset managers in the UK. 

And I think the latest collapse in Abrdn shares is primarily due to current market conditions rather than a failing business model. This is why I still hold on to my opinion that it is a bargain right now.  

Positives and verdict

Abrdn has been a consistent dividend payer for over 15 years now. In July 2022, the company managed to roll out a share buyback worth £300m. The board also announced its plans to return £500m to shareholders after the firm was removed from the FTSE 100 last month. 

The firm has also changed how it uses excess cash. While many analysts questioned the acquisition of Interactive Investor for £1.5bn, the firm has also been shedding excesses to generate more cash. 

Heading into H2 2022, the investment firm sold two of its stakes in HDFC for about £500m. The company also sold £300m worth of Phoenix Group shares to fund the aforementioned share buyback program.  

This makes me optimistic that the company plans on maintaining a decent dividend going forward. While the current yield of 10% might be unsustainable given falling profits, I think the annual yield will remain higher than the FTSE 100 average of 3.5%. 

When the economy recovers, I expect large asset managers to recover quickly. Given its current sky-high yield and history of shareholder returns, I think Abrdn shares currently offer a nice mix of growth potential and value. I am wary of further economic turmoil in the UK, which is why I am looking at a £1,000 lump sum investment when conditions stabilise. 

The post Up 8% in a week! Can beaten-down Abrdn shares make a comeback?  appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

The finance firm’s stock looks cheap right now with a yield of over 9%. But should I invest or be wary of a value trap? Let’s find out. 

Passive income is the way 

My main goal for my investing journey is to maximise savings from my day job and retire early. And this quest for financial freedom isn’t unique. Millions of investors have slowly woken up to the power of dividends. Looking at the Google search data for ‘passive income’ since 2004 (see chart below), the jump in popularity over the last two years is clear.

A stable passive income portfolio could be incredibly rewarding in the long run. Many investors have used dividends to retire in their 40s. And it doesn’t require complicated analysis either. Looking for stable businesses with strong cash flow and a history of dividend hikes is a good starting point. How do Abrdn shares fare in these areas? 

Share price analysis 

Abrdn shares are currently trading at 160p at a price-earnings ratio of a measly 3.5 times. Factoring in the 9.1% dividend yield, this asset manager’s stock looks very attractive on paper. 

But shareholders have been selling this stock in record numbers. Down 44% over the last 12 months, Abrdn shares rank 98th in the FTSE 100 for returns. 

Looking at the 2021 results, I think the asset manager had a strong year. Its fee-based revenue model generated over £1.5bn from its total assets under management (AUM) worth £542bn.

As of 2022, Abrdn’s 9.1% yield is covered 1.18 times on an adjusted capital generation basis. While this is higher than 2020’s cover of 0.84 times, the board has made it clear that the current 14.6p per share payout will remain unchanged until a capital cover of  1.5 times is met. 

This makes a dividend rise in 2022 unlikely. But the board is confident of a progressive dividend hike in the next few years so the firm may be able to maintain its high yield longer term.

A major concern here is the revenue from fees. The current economic slowdown is already affecting the average trading volume in the US and UK. People are likely to protect savings during inflation, which could cause private investment figures to drop. And historically, finance firms perform poorly during inflation because of lower activity. 

I also understand that passive income can’t make me rich overnight or completely offset the effects of inflation. Depending on my capital, it could take decades of diligent investing before payouts are large enough to support my retirement.

However, as a passive income option for the long term, the Abrdn share price looks very attractive right now. The company seems to be in a decent financial position and the board is expecting a tidy jump in earnings this year as well. But I think I will wait for the half-yearly results scheduled for 9 August. I’d consider an investment in Abrdn if the results look favourable.

The post Should I buy Abrdn shares just for the 9.1% dividend?  appeared first on The Twelfth Magpie.

More reading

• How much second income could I make from £10k in the stock market?
• Has this FTSE 100 dividend stock finally turned a corner?
• How much do I have to invest in this newly-promoted FTSE gem to target £7,927 a year in passive income?
• Aberdeen shares are back in the FTSE 100 — is this turnaround stock just getting started?

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.