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In 2024, we’ve seen massive dividend cuts from numerous well-known UK-listed firms. In February, Glencore lowered its dividend by 70% whereas in March, Vodafone introduced it could be slashing its payout by 50%.
Trying throughout the UK market at present, I feel there are just a few extra firms that might probably announce dividend cuts within the close to time period. Right here’s a FTSE 250 inventory whose excessive yield seems susceptible, for my part.
An enormous yield at present
The corporate I’m going to zoom in on is funding administration agency abrdn (LSE: ABDN).
Lately, this firm’s paid out some massive dividends to its shareholders. Final 12 months, the overall payout was 14.6p, which interprets to a yield of about 10% on the present share worth.
Nonetheless, I’m not satisfied this payout’s sustainable. Crunching the numbers, I imagine a considerable lower’s probably within the close to future.
A lower coming?
One motive is that earnings per share this 12 months are solely anticipated to quantity to 12.2p. In different phrases, they received’t cowl final 12 months’s dividend payout. Subsequent 12 months, earnings are anticipated to rise to 13.4p per share, nonetheless not sufficient to cowl the dividend.
One more reason I reckon a lower’s on the horizon is that the corporate’s paid out 14.6p per share for 4 years now. So there’s been zero progress within the payout for some time. Usually, this sample comes earlier than a lower. I’ve seen it with a whole lot of firms (Vodafone’s an important instance right here).
A 3rd challenge right here is that abrdn’s CEO Stephen Chook stepped down final month. I feel a change in management may end in a brand new capital allocation coverage. I wouldn’t be stunned in any respect if the brand new incoming CEO appeared on the huge dividend (which isn’t lined by earnings) and took an axe to it with the intention to unlock some money.
One different factor value mentioning is that quick sellers are at the moment sniffing round this inventory. They count on its share worth to fall. This may very well be associated to a doable dividend lower. Usually, when firms lower their payout, their share costs fall too (in a double blow to traders).
I’m steering clear
It’s value declaring that the yield may nonetheless be engaging after a lower. For instance, if the corporate was to slash its payout by 50%, the yield may nonetheless be round 5%, or presumably greater if the share worth was to fall.
Nonetheless, personally, I wouldn’t be tempted by this yield. Lately, this enterprise has been struggling to compete with passive funding managers like iShares and Vanguard, so there’s some uncertainty in relation to its long-term prospects.
I do assume the corporate’s latest transfer to purchase Interactive Investor was savvy. That’s an important funding platform with loads of progress potential. I additionally like the actual fact the corporate’s specializing in Asia and various investments.
All issues thought of although, I feel there are higher dividend shares to purchase for my portfolio at present.
