abrdn (LON:ABDN) Will Pay A Dividend Of UK£0.073

The board of abrdn plc (LON:ABDN) has announced that it will pay a dividend on the 24th of May, with investors receiving UK£0.073 per share. This makes the dividend yield 7.1%, which will augment investor returns quite nicely.

See our latest analysis for abrdn

abrdn Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, abrdn's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to fall by 72.3% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 107%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the first annual payment was UK£0.19, compared to the most recent full-year payment of UK£0.15. This works out to be a decline of approximately 2.7% per year over that time. 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

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. 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

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about abrdn's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, abrdn has 3 warning signs (and 1 which is significant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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