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In 2024, we’ve seen massive dividend cuts from numerous well-known UK-listed corporations. In February, Glencore lowered its dividend by 70% whereas in March, Vodafone introduced it will be slashing its payout by 50%.
Wanting throughout the UK market at this time, I believe there are a number of extra corporations that might doubtlessly announce dividend cuts within the close to time period. Right here’s a FTSE 250 inventory whose excessive yield appears weak, in my opinion.
An enormous yield at this time
The corporate I’m going to zoom in on is funding administration agency abrdn (LSE: ABDN).
In recent times, this firm’s paid out some huge 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 value.
Nevertheless, I’m not satisfied this payout’s sustainable. Crunching the numbers, I imagine a considerable reduce’s probably within the close to future.
A reduce coming?
One purpose is that earnings per share this 12 months are solely anticipated to quantity to 12.2p. In different phrases, they gained’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.
Another excuse I reckon a reduce’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. Typically, this sample comes earlier than a reduce. I’ve seen it with plenty of corporations (Vodafone’s an excellent instance right here).
A 3rd situation right here is that abrdn’s CEO Stephen Hen stepped down final month. I believe a change in management may lead to a brand new capital allocation coverage. I wouldn’t be shocked in any respect if the brand new incoming CEO regarded on the large dividend (which isn’t lined by earnings) and took an axe to it in an effort to unlock some money.
One different factor price mentioning is that quick sellers are at present sniffing round this inventory. They anticipate its share value to fall. This may very well be associated to a attainable dividend reduce. Typically, when corporations reduce their payout, their share costs fall too (in a double blow to traders).
I’m steering clear
It’s price declaring that the yield may nonetheless be enticing after a reduce. For instance, if the corporate was to slash its payout by 50%, the yield may nonetheless be round 5%, or presumably increased if the share value was to fall.
Nevertheless, personally, I wouldn’t be tempted by this yield. In recent times, 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 excellent funding platform with loads of progress potential. I additionally like the very fact the corporate’s specializing in Asia and different investments.
All issues thought of although, I believe there are higher dividend shares to purchase for my portfolio at this time.