Investors considering a £5,500 holding in this FTSE 250 heavyweight could make £11,129 in annual dividend income over time!
FTSE 250 investment firm aberdeen (LSE: ABDN) has dropped 25% from its 4 March one-year traded high of £1.86.
A stock’s yield moves in the opposite direction to its price, given the same annual dividend. The fall in aberdeen’s share price means its yield has now been pushed up to a stellar 10.4%. By comparison, the current average yield of the FTSE 250 is 3.4% and of the FTSE 100 3.6%.
Moreover, the firm has paid the same 14.6p every year since 2020. And consensus analysts’ projections are that it will continue to do so in 2025, 2026 and 2027 at least.
How solid is the business?
A risk to these payouts is that the US’s new protectionist tariffs prompt a global recession. This could cause investors to withdraw funds from aberdeen to safeguard their assets.
I have heard it said that this is also a risk to investment firms as it makes picking winners more difficult.
It does, but as a former senior investment bank trader I know that is what they are paid to do. And highly volatile markets make big profits more readily available to firms that know what they are doing.
Recent results look very good in this context to me. Its 4 March 2024 numbers showed adjusted operating profit of £255m against 2023’s £249m. This helped turn a £6m loss before tax into a £251m profit last year.
The turnaround here results from an ongoing reorganisation. It aims to reduce costs (mainly in middle management) and improve the service for clients.
In 2024, it cut total administrative and other expenses by 10.3% year on year to £1.313bn. Net capital generation – a powerful engine for growth – jumped 34% to £238m over the same period.
The firm says it remains on track to deliver at least £150m in cost savings by the end of 2025. And by 2026 it aims for an adjusted operating profit of over £300m and net capital generation of around £300m.
Huge dividend income potential
Investors considering a holding of £5,500 (half the UK average savings) in aberdeen would make £572 in first-year dividends.
On the same average 10.4% yield, this would rise to £5,720 after 10 years and to £17,160 after 30 years.
That said, far greater returns can be made if ‘dividend compounding’ were used here. This simply involves the dividends paid by a stock being reinvested back into it. It is just like leaving interest in a bank savings account to grow.
On this basis and the same 10.4% average yield, dividends would increase to £9,293 after 10 years, not £5,720. And after 30 years on the same basis, this would jump to £101,513 instead of £17,160.
Adding in the initial £5,500 stake and the total holding would be worth £107,013 at that point.
This would pay £11,129 in annual dividend income by then!
Will I buy more of the shares?
I already own a sizeable stake in aberdeen at a variety of price entry points. However, given its good business prospects in my view and its stunning yield, I will buy more shares very soon.
The post Investors considering a £5,500 holding in this FTSE 250 heavyweight could make £11,129 in annual dividend income over time! appeared first on The Motley Fool UK.
But this isn’t the only opportunity that’s caught my attention this week. Here are:
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions,
he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy
— and discover:
- Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
- How to potentially get paid by the weather
- Electric Vehicles’ secret
backdoor
opportunity - One dead simple stock for the new nuclear boom
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
More reading
- I’ve been snapping up shares in this 11.6% yielding FTSE 250 growth stock
- Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”
- This FTSE 250 share offers a juicy 9.8% yield. Will it last?
- This re-energised FTSE 250 ultra-high-yield star looks packed with value to me now!
Simon Watkins has positions in aberdeen group. 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.
