As the cost-of-living crisis drags on, I’ve been looking to add more dividend shares to my portfolio. Receiving a proportion of a company’s profits as cold, hard cash is one way of keeping up with rising prices.
A reversal in market sentiment could also make me a decent profit too, especially if I buy when valuations aren’t stretched.
Here’s one example that catches my eye.
Should you invest £1,000 in Liontrust Asset Management Plc right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Liontrust Asset Management Plc made the list?
Sticky patch
Share prices of companies operating in the financial sector haven’t fared well of late due to multiple economic headwinds. This is particularly the case with asset managers.
Of course, this shouldn’t come as a surprise. It’s only natural that demand for their services should go down when investors are keen to take their cash out of the market, or at least disinclined to put new money to work. However, it’s this cyclicality that piques my interest.
The time to buy in is when things look pretty grim. And I suspect (but can’t guarantee) we’re close to the bottom of the cycle right now.
Ready to roar?
Liontrust Asset Management (LSE: LIO) is my pick in the space. Since hitting a high of nearly 2,500p a pop in September 2021, its share price has tumbled 60% or so to 1,000p. Scary as that may be, there are a few reasons why I like this stock.
While fairly average among peers, margins are very healthy relative to the market as a whole. There’s barely any debt on its balance sheet either.
I also wonder whether we’ve seen the worst in terms of investors wanting to flee the market.
In its last update to the market (January), the company revealed that net outflows hit £632m in the last three months of 2022. That might seem bad but it was actually an improvement on the £1.6bn in the previous quarter.
This suggests investors’ nerves are starting to settle.
Mighty dividend yield
Liontrust gets another tick in the box for its dividend credentials. Assuming estimates are on the nose (while maintaining an open mind here), the company is forecast to return 72p per share in FY24. At the current share price (as I type), that gives a mighty yield of 7.2%. By comparison, the FTSE 250 index that counts Liontrust as a member yields just 3.2%.
The only downside is that the payout would be the same as that returned in 2022. Generally speaking, a stagnant dividend is not attractive.
In Lionstrust’s defence, keeping the total dividend steady for now strikes me as prudent until the good times return. It’s also worth noting that shareholders enjoyed several years of consistent hikes prior to this.
My verdict
Buying a slice of Liontrust clearly isn’t without risk and the possibility of a recession still looms large. The question to ask is how much of this is already priced in. Available for just 10 times forecast earnings (based on existing projections from analysts), I’d say quite a lot.
However, it’s worth remembering that expectations can be, and often are, revised. This is why maintaining at least some degree of diversification within a portfolio is always vital.
Since my Foolish training has ensured this is already the case, I’d be willing to buy this cheap dividend share today if I had the cash available.
