Dividends are paid out by companies to their shareholders and are a part of the net income. The amount of dividends to be paid out and their payments are decided by the company’s Board of Directors. Dividends are of great interest to investors, as they can serve as a signal about a company’s future prospects.
Using the TipRanks stock comparison tool, let us compare two UK dividend stocks, M&G plc and abrdn, and see what Wall Street analysts are saying about these stocks.
M&G (UK: MNG)
M&G is an investment management company, headquartered in London, that manages investments, including pension funds, for both individual investors and large institutional investors globally. The company invests in and manages a wide array of assets, including fixed income, equities, and real estate.
While the asset management company has yet to declare its Fiscal 2021 results, the company exhibited strong results in the first half of the year.
In H1 of FY21, MNG’s assets under management (AUM) for institutional investors reached a record £89.7 billion, following net client (mainly European client) inflows of £2.2 billion. Even for MNG’s retail asset management business, net client outflows fell more than 50% as this business’s investment performance improved.
RBC Capital analyst Gordon Aitken expects the trend of declining net outflows for the retail asset management business to continue in Q4. His analysis suggests £2.6 billion in net outflows over the fourth quarter.
For 2021, the analyst estimates Savings and Asset Management business will have net outflows of £3.9 billion.
The company generated total capital of £869 million, indicating that it was on track to reach its target of generating £2.2 billion by the end of this year.
However, the analyst is more optimistic about M&G’s insurance business, which currently makes up 72% of the company’s profit. He still remains cautious about the asset management business. Aitken commented, “We believe M&G will meet its capital generation target and continue to pay its dividend by offloading risk to reinsurers, which should capitalise profits and free up capital.”
The analyst remains bullish, with a Buy rating and a price target of 260p (19.9% upside) on the stock.
The rest of the analysts on the Street are sidelined on M&G, with a Hold rating based on a consensus rating of 1 Buy and 3 Holds. The average M&G stock prediction of 228p implies upside potential of approximately 5.1% to current levels for this stock.
The company declared an interim dividend of 6.1 pence per share, continuing with its policy of paying 33% of the previous year’s total dividend. MNG stated that this interim dividend would take the “cumulative payout since our shares were listed in October 2019 to 40.1 pence per share.”
The TipRanks dividend yield calculator indicates that MNG currently has a dividend yield of 8.24%. Analyst Aitken expects a dividend yield of 9% this year and 9.2% in 2023. This dividend yield makes M&G one of the highest dividend stocks in the UK.
abrdn (UK: ABDN)
abrdn is an investment management company based out of Edinburgh, Scotland. While the company has yet to declare its full-year results for 2021, it had a stellar first half of 2021.
abrdn’s fee-based revenues increased 7% year-over-year to £755 million, with adjusted operating profit rising 52% year-over-year to £160 million. However, ABDN’s assets under management and administration (AUMA) dropped by 1% year-over-year, driven by net outflows of £5.6 billion, of which institutional and liquidity net outflows were £3.7bn.
When it comes to the fourth quarter of 2021, RBC analyst Mandeep Jagpal, using Refinitiv data, tracked a subset of abrdn’s institutional and wholesale AUM that suggested that there were £1.7 billion of net outflows over Q4, excluding liquidity funds.
The analyst added that as abrdn’s equity and multi-asset funds showed a downward trend, it implied “downward pressure on abrdn’s revenue margin as these asset classes have high net management fees at 65bps [basis points] and 34bps respectively, vs a group average of 28bps.”
But the company has stated in its outlook that it wants to stop this decline in revenue over the near term and aims to achieve “a high single digit” compounded annual growth rate (CAGR) until 2023.
So, is analyst Jagpal bullish on the stock? No. In fact, the analyst has rated the stock a Sell with a price target of 225p (6% downside).
Other analysts on the Street are sidelined on abrdn with a Hold rating based on a consensus rating of 4 Buys, 3 Holds and 2 Sells. The average abrdn stock prediction of 277.88p implies upside potential of approximately 16.1% to current levels for this stock.
The company’s adjusted capital generation rose by £73 million to £176 million. abrdn is targeting a rebased dividend of 14.6p per annum until its adjusted capital generation reaches 1.5x dividend cover.
In H1 of FY21, ABDN’s improved capital generation covered the dividend of 7.3p per share, indicating a dividend cover of 1.14 times abrdn’s adjusted capital generation. The TipRanks dividend calendar UK indicates that the ex-dividend date was on August 19 last year. The TipRanks dividend yield calculator indicates that abrdn currently has a dividend yield of 3.18%, and analyst Jagpal expects this dividend yield to be 6% this year and in 2023.
Bottom Line
Based on the expected dividend yield for M&G and abrdn, it seems M&G is a better Buy.
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