In 2024, we’ve seen large dividend cuts from a number of well-known UK-listed companies. In February, Glencore reduced its dividend by 70% while in March, Vodafone announced it would be slashing its payout by 50%.
Looking across the UK market today, I think there are a few more companies that could potentially announce dividend cuts in the near term. Here’s a FTSE 250 stock whose high yield looks vulnerable, in my view.
A huge yield today
The company I’m going to zoom in on is investment management firm abrdn (LSE: ABDN).
In recent years, this company’s paid out some big dividends to its shareholders. Last year, the total payout was 14.6p, which translates to a yield of about 10% at the current share price.
However, I’m not convinced this payout’s sustainable. Crunching the numbers, I believe a substantial cut’s likely in the near future.
A cut coming?
One reason is that earnings per share this year are only expected to amount to 12.2p. In other words, they won’t cover last year’s dividend payout. Next year, earnings are expected to rise to 13.4p per share, still not enough to cover the dividend.
Another reason I reckon a cut’s on the horizon is that the company’s paid out 14.6p per share for four years now. So there’s been zero growth in the payout for a while. Often, this pattern comes before a cut. I’ve seen it with a lot of companies (Vodafone’s a great example here).
A third issue here is that abrdn’s CEO Stephen Bird stepped down last month. I think a change in leadership could result in a new capital allocation policy. I wouldn’t be surprised at all if the new incoming CEO looked at the massive dividend (which isn’t covered by earnings) and took an axe to it in order to free up some cash.
One other thing worth mentioning is that short sellers are currently sniffing around this stock. They expect its share price to fall. This could be related to a possible dividend cut. Often, when companies cut their payout, their share prices fall too (in a double blow to investors).
I’m steering clear
It’s worth pointing out that the yield could still be attractive after a cut. For example, if the company was to slash its payout by 50%, the yield could still be around 5%, or possibly higher if the share price was to fall.
However, personally, I wouldn’t be tempted by this yield. In recent years, this business has been struggling to compete with passive investment managers like iShares and Vanguard, so there’s some uncertainty in relation to its long-term prospects.
I do think the company’s recent move to buy Interactive Investor was savvy. That’s a great investment platform with plenty of growth potential. I also like the fact the company’s focusing on Asia and alternative investments.
All things considered though, I think there are better dividend stocks to buy for my portfolio today.
This post was originally published on Motley Fool
