A 9.5% yield but down 35%! This overlooked FTSE dividend superstar looks a bargain to me!
FTSE funding supervisor abrdn (LSE: ABDN) has seen its share worth drop 35% from its 20 July 12-month traded excessive.
This was virtually solely attributable to a technical readjustment after it was demoted from the FTSE 100 to the FTSE 250 final August.
It meant that the share was mechanically dropped from funds monitoring the FTSE 100. Different funds that solely spend money on essentially the most regulated, highest-credit-rated shares additionally minimize their holdings in it.
I virtually by no means spend money on non-FTSE 100 corporations, however three key elements prompted me to take action in abrdn lately.
It was right here earlier than and bounced again
In August 2022, abrdn was additionally demoted from the FTSE 100 earlier than being promoted once more in December that 12 months. Throughout that interval, its shares additionally collapsed on demotion, earlier than spiking once more when it was promoted again.
I feel the identical might occur once more as the corporate has launched into a serious reorganisation to that finish.
It intends to chop prices by £150m, specializing in eradicating layers of administration – at all times a good suggestion in my opinion. The agency additionally offered its lacklustre US and European Personal Fairness operations.
It’s now concentrating on its well-performing investments, advisory, and the ii funding platform. These made adjusted working earnings of £50m, £118m, and £114m, respectively, in 2023.
Total, it made an adjusted working revenue final 12 months of £249m. This was down barely from £263m in 2022, because of the upfront prices related to restructuring.
One threat is that its reorganisation is just not profitable long run. One other is that its property below administration (AUM) might begin to decline once more.
Nevertheless, a Q1 2024 replace confirmed its AUM rose by 3% 12 months on 12 months, to £507.7bn. And consensus analysts’ expectations are actually that its earnings will develop by a surprising 56% yearly to end-2026.
Is it undervalued?
The demotion and computerized sell-off that adopted have left the shares very undervalued, I feel.
On the important thing price-to-book (P/B) measurement of inventory worth, it trades at simply 0.5 towards a peer group common of three.6.
It additionally appears undervalued on the price-to-sales (P/S) ratio – buying and selling at just one.9 towards a peer group common of three.2.
On each key measures, the shares appear like a serious discount to me.
Large dividend payer
In 2023, it paid a complete dividend of 14.6p per share. Primarily based on the present share worth of £1.53, this offers a yield of 9.5%.
Yields can fall in addition to rise, relying on dividend funds and share costs. Nevertheless, this compares to the present common FTSE 250 yield of three.4% and the FTSE 100’s 3.8%.
So, a £10,000 funding would yield £950 this 12 months. Over 10 years, supplied the speed stayed the identical, this is able to add £9,500 to the preliminary funding.
Crucially, although, way more could possibly be made if I reinvested the dividends again into the inventory – generally known as ‘dividend compounding’.
Doing this is able to give me an additional £15,761 as an alternative of £9,500.
After 30 years of doing this with a median 9.5% yield, I’d have £170,949. This could pay me £15,434 ayear in dividends or £1,286 a month.
Given the wonderful yield, the obvious undervaluation, and its sturdy progress prospects, I shall be shopping for extra abrdn shares very quickly.