The board of abrdn plc (LON:ABDN) has announced that it will pay a dividend of UK£0.073 per share on the 24th of May. Based on this payment, the dividend yield on the company's stock will be 7.1%, which is an attractive boost to shareholder returns.
abrdn Is Paying Out More Than It Is Earning
A big dividend yield for a few years doesn't mean much if it can't be sustained. abrdn is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
EPS is set to fall by 72.3% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 107%, which could put the dividend in jeopardy if the company's earnings don't improve.
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from UK£0.19 to UK£0.15. Doing the maths, this is a decline of about 2.7% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see abrdn has been growing its earnings per share at 17% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
Our Thoughts On abrdn's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for abrdn (1 is significant!) that you should be aware of before investing. Is abrdn not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.