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I’ve been monitoring a FTSE 250 stock whose shares have struggled for years and now offers a blistering double-digit yield as a result.
The company in question is Ashmore Group (LSE: ASHM), an emerging markets-focused investment manager that’s been through the wringer more than once.
Its shares are down 13% over the past year and a hefty 65% over five years. At the start of the pandemic, they traded at around 550p. Today they sit at just 155p. That’s a near 75% drop. No dividend, however generous, can fully make up for that kind of capital destruction.
However, those capital losses are in the past. What matters is what happens next. Can the Ashmore share price recover?
Brilliant dividend income
The shares did show signs of life recently, jumping 10% in a few weeks, before renewed Middle East tensions halted momentum. They look decent value, with a price-to-earnings ratio of just over 11. To be honest, I thought they might be cheaper given the risks attached.
Ashmore Group’s struggles reflects wider challenges in emerging markets. The 2008 financial crisis hit the sector hard, as many countries had built-up large debts in dollars, which were now pricier to service.
Emerging markets continue to struggle today, especially previous star performer China. Ashmore is helpless here. It can only sit tight and hope for better conditions.
In March, broker UBS upgraded the stock from Neutral to Buy, lifting its target to 180p, citing better fund flows and attractive valuations. Sadly, the boost proved shortlived.
In April, Ashmore reported another $3.9bn of institutional redemptions in Q1. And that was despite a positive investment performance of $1.3bn. Assets under management fell 5% as a result, to $46.2bn.
The board tried to put a brave face on it, insisting that volatility, dollar weakness and policy shifts could eventually bring investors back to emerging markets. We’re still waiting.
Growth worries
In the past 12 months, the yield has ranged from 7.74% to 13.51%. Yet over the past nine years, investors have seen just one dividend increase. From 2012 to 2020, the payout stayed flat at 16.65p. The board bumped it up by 1.5% to 16.9p in 2020, but it’s been frozen at that level for the last four years.
It suggests a business that’s struggling to expand. Or reluctant to make promises it might not be able to keep.
Ashmore is trapped in a vicious circle. It needs to excite institutional investors, but will struggle to do so while emerging markets search for direction.
That yield is mighty tempting. But right now, with war in Ukraine, tension in the Middle East and US-China relations stuck in a deep freeze, the odds look stacked against a wider emerging markets recovery.
If the global economy was swinging along, I’d be filling my boots. Ashmore might be a brilliant way to play a full-blooded recovery. I just don’t see one right now.
