The September stock market crash took few prisoners and the Abrdn (LSE: ABDN) share price slumped 6% over the course of the month. It even dropped to its cheapest since November 2020 at one point.
At 250p per share, the FTSE 100 firm’s now up just 4% on a 12-month basis. Does recent weakness represent a terrific dip buying opportunity for long-term investors like me? And is Abrdn one of the best dividend stocks for me to buy in particular?
Well Abrdn certainly packs plenty of punch when it comes to dividend yields. City analysts think the asset manager will match 2020’s total annual payout of 14.6p per share in both 2021 and 2022. This results in a yield of 5.8%, one which smashes the broader FTSE 100 average of 3.5%.
Of course, there’s more than just yield to think about when considering which are the best income stocks to buy. Firstly, there’s a company’s profits outlook to think about. And there’s plenty going on on this front at Abrdn.
The business was created from the 2017 merger of Standard Life and Aberdeen Asset Management. And it’s embarked on an aggressive programme of asset shedding to streamline its operations and focus more effectively on the asset management sector alone. This includes the sale of its Standard Life brands to Phoenix in February and divestment of its Parmenion private equity brand.
Abrdn also hopes the sale of non-core assets will bolster its long-term programme of cost reduction to give earnings an extra bump. The business reported a cost-to-income ratio of 79% between January and June, down 6% year-on-year. It hopes to pull the ratio to 70% by the end of 2023.
Is Abrdn a risk too far?
That being said, there are several reasons I think Abrdn might not be one of the best dividend stocks to buy. Firstly, that predicted 14.6p per share dividend for this year isn’t built on particularly strong foundations.
In fact, those projected payouts are higher than analysts think earnings will come in at for both years. And Abrdn doesn’t have the financial clout of some of its rivals like Legal & General to paper over these cracks and meet those dividend projections.
City analysts expect earnings at Abrdn to fall 88% in 2021 before rebounding 8% next year. But the level of fund outflows, while moderating more recently, remain substantial enough to cause me worry. Outflows clocked in at £5.6bn in the first half, suggesting investor confidence in the asset manager is still wafer-thin following the loss of a major contract with Lloyds a few years back.
The fact that Abrdn operates in a hugely-competitive marketplace isn’t helping its cause either. And I think its recent decision to rebrand could backfire spectacularly. By ditching the Standard Life moniker, the company’s thrown away a brand that’s been trusted by customers since the early 1800s. This is particularly risky for businesses that exists to protect people’s money.
All things considered I think there are better dividend stocks for me to buy right now.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.