Trading at a 10-year low, this FTSE income stock now yields a chunky 6.99%!
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I am hungry to add another top FTSE 100 income stocks in my portfolio, and The Schroders (LSE: SDR) is jumping ‘Buy me!’. Should I listen?
The family-run fund manager now has a nice trailing yield of 6.99%. That’s above the FTSE 100 average of about 3.5%. At that rate I could double my money in just over a decade, even if the share price didn’t rise at all. Imagine if it happened!
Actually, that’s pretty hard to imagine right now, because Schroders’ share price has been rising for years.
Schroders shares should carry a wealth warning
Today, it is trading at a 52-week low after falling 20.05% over the past 12 months. But this is not a single collapse.
Ten years ago Schroders shares were trading at 426p. They are down almost 28% since today at 308.8p. That’s down 10 years. I was tempted to buy stock in various places during that time, and I’m glad I said no. Is this my last moment?
The latest drop (10% month on month!) followed results published on 5 November, which showed Q3 output hitting £2.3bn.
That marked a sharp turnaround from the first nine months of the year, when the group enjoyed net cash flows of £1.6bn. A positive stock market and strong investment performance pushed assets under management to a record £777.4bn.
That has faded now, in part to market volatility in China. I see the impact of the Beijing crisis on my entire portfolio, with Burberry again Glencore the most prominent examples.
Schroders can’t catch a break. Its asset management operations have posted growth in the private markets, only to see it eroded by fluctuating foreign exchange rates. It faces an additional £8bn in outflows in Q4, when the Scottish widows mandate expires, and another £2bn in known outflows from other customers.
It still hopes to win between 5% and 7% new business growth while chief financial officer Richard Oldfield looks at “Build greater discipline in commerce and drive efficiency through simplification and seamless execution”. It sounds simple enough.
It’s a tough time for FTSE 100 stocks
In Schroders’ defense, most FTSE 100 financials have had a tough year. Hold me Legal and General Group again IM&G. Their shares fell by 1.71% and 4.27%, although that is nothing on Schroders’ scale. They yield 9.33% and 10.10% respectively, so the income is also great.
Schroders has a good dividend record though. It has never reduced shareholder payouts for over 30 years. Since 2004, they have increased by an average of 9.8% per year. That continues as this chart shows.
Chart with TradingView
Schroders looks reasonably priced, trading at 12.50 trading times. That is below the FTSE 100 average of 15.4 times. However, the price-earnings ratio of 1.7 doesn’t hold me back. That means I pay £1.70 for every £1 of sales.
The 14 analysts providing one-year price forecasts for Schroders have set an average price target of 367.4p, which is 20.08% higher than today. I suspect that those were mostly covered before the recent dip, when expectations were high.
Despite its problems, Schroders tempts me. I think the stock markets are due to perform well after a bad summer, and Schroders can bounce back if we get it. I would buy if I hadn’t caught L&G and M&G.
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