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Standard Life Aberdeen PLC

Standard Life Aberdeen rise reflects absence of feared dividend cut, but risks still remain with earnings cover thin

The merged group actually increased their total pay-out for 2018 to 21.6p per share and said it is targeting an unchanged pay-out going forward

Dividends file
That puts the stock on a yield of 8.6% for 2019, one of the ten highest in the FTSE 100, which may catch the eye of income-seekers

Although the headlines for Standard Life Aberdeen PLC (LON:SLA) were focused around the pushing aside of co-CEO Martin Gilbert, today’s share price rise probably more reflected the fact that the asset manager plans to maintain its future dividends, scotching fears that the big payment could be cut.

The merged group actually increased their total pay-out for 2018 to 21.6p per share and said it is targeting an unchanged pay-out going forward as it continues to implement its plan of becoming a pure-play asset manager.

READ: Standard Life Aberdeen appoints Keith Skeoch as its sole chief executive, with Martin Gilbert to step aside

That puts the stock on a yield of 8.6% for 2019, one of the ten highest in the FTSE 100, which may catch the eye of income-seekers.

However, Russ Mould, investment director at AJ Bell pointed out that yield also reflects the capital risks that investors believe come with holding SLA shares, since they are demanding such a fat return to compensate themselves for a range of potential dangers – including a dividend cut still.

He noted: “Investors had been bracing themselves for a cut from Aberdeen Asset Management before it welcomed Standard Life’s embrace and while today’s statement may offer some reassurance investors will still be on a state of alert.”

The investment director said: “Earnings cover for the dividend is thin and pressure on fees, from customers, competitors and the regulator alike, as well as ongoing fund flows, will not help in this regard.

“A sudden stock market lurch lower, hitting assets under management, would be a further challenge to the company’s near-term earnings power.”

Standard Life had increased its dividend every year since its 2006 flotation

Mould added: “Although the change in group structure in 2017 muddies the comparison a little, Standard Life had increased its dividend every year since its 2006 flotation, so that proud record is now coming to an end in 2019.”

He pointed out that the end of that streak is therefore in itself an admission that all is not going as well as hoped, adding “investors will remember only too well how a move to an unchanged dividend at Tesco (2012-13) and Pearson (2016) after a long sequence of consecutive increases merely proved to be the precursor to big cuts and a share price collapse.”

The AJ Bell commentator concluded: “It may be cold comfort but at least you could argue that Standard Life Aberdeen’s share price has already plunged, given the fall 40% fall since the merger took effect in August 2017. As such a hefty cut in the dividend is at least partly priced in, even if management continues to fight against such an outcome.”

In late afternoon trading, Standard Life Aberdeen shares were trading at 253.20p, up 3.4% on Tuesday’s closing price.

Quick facts: Standard Life Aberdeen PLC

Price: £2.69

Market: LSE
Market Cap: £6.43 billion
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