The Abrdn (LSE: ABDN) share price fell off a cliff in the summer, crashing 33% in a month to bottom out at 159.4p on 22 August. It’s picked up a little in recent weeks but, at 183.35p, the recovery is far from complete.
The big attraction is that it now offers a sky-high yield of 7.98%, with the prospect of further price recovery in 2024 and beyond. Should I buy the shares?
Perhaps the first thing I should say is that there are plenty of financial stocks on the FTSE 100 with a similar-sized yield. It’s a sectoral trait right now. Financials have been out of favour after several years of stock market volatility.
Troubled time
I already hold wealth manager M&G, which yields 8.93%, and Legal & General Group (7.86%), and I’ve got my eyes on Phoenix Group Holdings (9.79%). So I should think carefully before adding Abrdn to my portfolio.
Interestingly, both L&G and Phoenix are notably cheaper, trading at just 6.4 times earnings. Even M&G’s higher forecast 16.4x price-to-earnings (P/E) ratio is lower than Abrdn’s surprisingly pricey P/E of 17.46x.
Abrdn suffered a reputational blow over the summer when it shuttered its Global Absolute Return Strategies (Gars) fund, once the UK’s biggest worth more than £25bn and a huge financial adviser favourite. The clever and complex strategies it used to target positive returns even when stock markets fell ultimately failed.
On 8 August, Abrdn reported a drop in net assets under management (AUM) in the first six months of the 2023, from £500bn to £495.7bn. Our old friend “challenging market conditions” was to blame. Net outflows totalled £4.4bn.
However, the drop in AUM was only 0.86% and the sell-off looked over done to me. Especially since the group posted a 10% rise in adjusted operating profit to £127m, and doubled its share buyback programme to £300m. That cut little ice with troubled investors. When risk is off, risk is off.
It’s too pricey
Today, risk is on again, as investors look forward to falling interest rates in 2024. The Abrdn share price is creeping upwards, rising 4.38% last week, although it’s still down 2.78% over 12 months and a whopping 36.11% over three years.
Investors remain wary of Abrdn, which posted a £615m loss in 2022, reversing a profit of £1.1bn in 2021, after suffering which it called “one of the hardest investing years in living memory”. The firm has never really found its feet since suffering teething troubles over the Standard Life Aberdeen Asset Management merger in 2017.
Probably its best move was buying the Interactive Investor fund platform in 2022, which added a new, solid income stream. The forecast yield is 8% but cover is just 0.8, which adds another layer of worry. The dividend was cut from 21.6p to 14.6p in 2020, and stayed there for 2021 and 2022. Yet with £1.5bn of net cash, it should be sustainable. Markets predict a yield of 7.96% both in 2023 and 2024.
What happens next depends on the stock market, to a large degree. Since I’m personally quite optimistic about 2024, I think Abrdn could continue its recovery. I’m just not excited enough to buy it today, though.
