This re-energised FTSE 250 ultra-high-yield star looks packed with value to me now!

A big reorganisation is under way at this FTSE 250 firm, which is already seeing good results. It also delivers a high yield and looks full of value to me.

| More on:
Abstract bull climbing indicators on stock chart

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The FTSE 250 investment manager formerly known as abrdn has not only added a few more vowels to its name recently. The newly-renamed aberdeen group (LSE: ABDN) has also turned a 2023 £6m IFRS loss before tax into a 2024 £251m profit.

According to the 4 March results, this included an adjusted operating profit of £255m against last year’s £249m. It also incorporated a £92m gain on the sale of its European private equity business and a 34% drop in restructuring expenses to £100m.

This restructuring focuses on cutting costs (mainly in middle management) and improving product offerings for clients.

Should you invest £1,000 in Abrdn 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 Abrdn made the list?

See the 6 stocks

I think the key risk here is that this restructuring falters at some point for some reason. That said, the firm now targets increasing profit by 18% within two years.

A passive income machine

I bought shares in the firm after its demotion from the FTSE 100 in September 2023. This automatically triggered heavy selling from tracker funds and those only able to invest in top-tier stocks.

As a share’s yield moves in the opposite direction to its price, this meant a huge rise in its dividend return. Looking at its dividend history and financials, I thought it highly likely that aberdeen would keep paying 14.6p a year.

After all, it had done so every year since 2020, including during another stint in the FTSE 250 in 2022. And analysts forecast it would continue to pay 14.6p in annual dividends from 2024-2027.

It did precisely that this year, which gives a yield on the current £1.74 share price of 8.4%. By comparison, the average FTSE 250 yield is 3.4% and the FTSE 100’s is 3.5%.

So, investors considering a £10,000 holding in the firm would make £13,096 after 10 years if the yield averaged the same. After 30 years on the same basis, this would rise to £113,200.

The total value of the aberdeen stake would be £123,200 by then. This would generate £10,349 a year in annual passive income by that point!

It is important to note that these returns are also based on the dividends being reinvested back into the stock. This is a standard investment practice known as ‘dividend compounding’.

Could there be a share price bonus too?

I never expected to make much money quickly on a rising aberdeen share price as well as on the dividends. But this has happened and there is much more room for appreciation in my view.

The firm’s 0.6 price-to-book ratio is very undervalued compared to its competitors’ average of 2.2. These comprise RIT Capital Partners at 0.7, M&G at 1.4, Bridgepoint Group at 2.7, and Legal & General at 4.1.

aberdeen group’s 13.2 price-to-earnings ratio is also very undervalued against its 41.5 peers’ average. And the same applies to its 2.3 price-to-sales ratio compared to the 3l.8 average of its competitors.

The discounted cash flow analysis I ran to ascertain the stock’s fair value shows it is currently 48% undervalued. Therefore, its fair value is £3.35, although market vagaries might push it lower or higher.

Created with Highcharts 11.4.3aberdeen group PriceZoom1M3M6MYTD1Y5Y10YALL20 Mar 202020 Mar 2025Zoom ▾Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '252021202120222022202320232024202420252025www.fool.co.uk

As I already have a large position in aberdeen from a much lower price, I will stick with that. However, if I did not have this, I would buy the stock as quickly as possible for its big yield and major share price potential.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Simon Watkins has positions in Legal & General Group Plc, M&g Plc, and aberdeen group. The Motley Fool UK has recommended M&g Plc. 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

How to build passive income with dividend stocks: a beginner’s guide

Want to earn passive income through dividend investing? Learn how to build a portfolio of income-generating shares and grow your…

Read more »

Mother and Daughter Blowing Bubbles
Investing For Beginners

25 years on from the dot.com stock market crash, is history repeating itself?

Andrew Mackie recalls the events leading up to the stock market crash of 2000, and postulates lessons for today’s investors.

Read more »

Young Woman Drives Car With Dog in Back Seat
Investing Articles

Here’s what £10,000 invested in Tesla shares at the start of 2025 would be worth today…

Tesla shares might be in a slump this year, but it's worth remembering they've made 730% for shareholders in the…

Read more »

Investing Articles

Down 13% in a month, should I buy more shares in this FTSE 100 investment trust?

This FTSE 100 investment trust has suffered amid recent stock market volatility. Our writer ponders whether to be greedy when…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Are shares in JD Sports 62% undervalued?

Value investing’s about buying shares when others aren’t interested. And this certainly seems to be true of some UK retailer…

Read more »

Young Caucasian girl showing and pointing up with fingers number three against yellow background
Investing Articles

These 3 UK shares are outperforming their US counterparts this year!

Amid trade tariff chaos, many UK shares are now outperforming their US rivals in 2025. Our writer looks at three…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Here’s how someone could invest £20k in an ISA to target £1,300 of passive income per year

Can an investor use £20,000 to earn over £108 per month in passive income while sticking to high-quality FTSE 100…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

US stocks: a rare chance to profit from volatility?

As the US stock market falls, Zaven Boyrazian looks at the biggest losers for possible buying opportunities. Could this be…

Read more »