With a blockbusting dividend yield of 8.4%, Abrdn (LSE: ABDN) shares are hard to ignore. Yet a sky-high yield is often a sign of a struggling company, and that applies here. Abrdn shares have crashed almost 60% in the last five years, and fallen 32.13% over the last 12 months.

Abrdn may be down but it is far from out. Investors are taking a shine to it again, with the share price picking up in recent weeks. The reason for this recovery looks pretty clear to me.

Abrdn shares offer amazing income

Abrdn is an asset manager, and as such acts as a geared play on the stock market. When investors are nervous and markets are down, I would expect its share price to fall harder and faster. When sentiment picks up and markets climb, it should lead the charge. Accordingly, the FTSE 100 is up 4.82% in the last month, but Abrdn is up a thumping 27.66%.

Investors have one eye on the end of the year, when they hope to see a Santa rally, as central bankers slow down on the interest rate hikes. Yet this is far from a done deal. Inflation hasn’t started falling yet and until it does, the US Federal Reserve in particular will remain hawkish.

Investors are playing a dangerous game trying to second-guess central bankers. They got it wrong in the summer, getting sucked into a bear market rally of their own making.

I don’t try to time the market in this way. I’m just happy to pick up top companies at low valuations. Abrdn trades at 12.5 times earnings, which is cheap but not dirt-cheap. Worryingly, its forecast price-to-earnings (P/E) is a pricey-looking 20 times.

Analysts expect the group’s earnings per share to fall by 37.4% next year, which isn’t good. Abrdn has seen a surge in net outflows, as shell-shocked investors run for cover. These hit £35.9bn in the first half of the hear, up from £5.6bn a year earlier.

The majority of this is down to the final £24.4bn tranche of Lloyds Banking Group’s withdrawal, triggered by the misfiring Standard Life merger. Not all of it though. Either way, Abrdn saw first-half adjusted pre-tax profit falll from £163m to £99m.

Yield is poorly covered

Abrdn has been sorting itself out following the merger. Earnings should also be boosted by its takeover of fund platform Interactive Investor, which should make a full contribution to second-half revenues.

Ultimately, much will depend on when the stock market recovery comes, as that will surely give Abrdn a lift. Yet I do have one big worry. Its huge yield is now covered just once by earnings. That is forecast to fall to 0.6 next year. This suggests the current payout is not sustainable, unless earnings rise sharply, which is not to be relied upon.

Plenty of cheap FTSE 100 stocks offer high yields right now, and most come with far superior cover. Aviva, Taylor Wimpey, and Rio Tinto immediately spring to mind. I’d buy them before taking a punt on Abrdn. However, I accept that I might regret it when the market rally finally arrives.

The post Should I invest in Abrdn shares? appeared first on The Twelfth Magpie.

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Harvey Jones holds shares in Rio Tinto. 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.

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 Abrdn (LSE:ABDN) share price has been on a downward trajectory for some time now. Despite this, the shares look tempting for my holdings, with some excellent fundamentals and future prospects. Should I buy Abrdn shares? Let’s take a closer look.

Abrdn shares continue to fall

As a quick reminder, Abrdn is one of the largest asset management businesses in the UK. It was previously known as Standard Life Aberdeen before it sold Standard Life to Phoenix Group Holdings last year. As an asset manager, it manages global assets including real estate, equities, and private market assets on behalf of its clients.

So what’s happening with the Abrdn share price currently? Well, as I write, the shares are trading for 151p. At this time last year, the stock was trading for 254p, which is a 40% decline. The stock market dip in March saw Abrdn shares fall and they have continued to do so while many other stocks have recovered. Inflationary pressures have not helped.

To buy or not to buy?

So what are the pros and cons of buying Abdrn shares for my portfolio?

FOR: A core aspect of my investment strategy is to buy and hold for the long term. That means I’m not going to be swayed by short-term issues and investor reactions. Abrdn is one of the largest asset managers in the UK with approximately £370bn assets under management with lots of cash on the books too. Furthermore, its restructure since disposing of its Standard Life insurance arm should support longer-term growth and increased returns too.

AGAINST: As well as geopolitical and macroeconomic factors pushing down Abrdn shares, its half-year report wasn’t the best. It reported that fee-based revenue dropped by 8% and operating profit also dropped by close to 30%. Part of that was caused by Lloyds Banking Group moving assets elsewhere but the total outflow of £35.9bn is a one-off, according to Abrdn.

FOR: At current levels, Abrdn shares look dirt-cheap to me on a price-to-earnings ratio of just six. The FTSE 100 average is 15, meaning the shares could represent value for money just now. Furthermore, they would boost my passive income stream through dividends. A dividend yield of over 9% is enticing, and Abrdn announced an interim dividend of 7.3p in its recent report. I am aware that dividends can be cancelled, however.

AGAINST: Abrdn shares have not been helped by its restructuring due to the sale of Standard Life mentioned above. In fact, it even said in its latest report that due to the current economic volatility, ambitions for growth are likely to take longer than anticipated. I view this as a short-term issue, however.

My verdict

Overall, I believe investor sentiment towards Abrdn has been a bit harsh. I view Abrdn shares as an excellent opportunity to buy cheap, dividend-paying shares in a top FTSE 100 firm. I’d be willing to buy some shares for my holdings. I expect some headwinds in the shorter term but in the longer term, I believe the business will grow, and returns, as well as the share price, will increase.

The post Abrdn shares are dirt-cheap with a juicy dividend yield! Should I buy shares? appeared first on The Twelfth Magpie.

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• 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?

Jabran Khan 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.