The volatility in the stock market over the past week has thrown up some really interesting opportunities for me to consider. An area of this is income shares. When a share price falls, it can act to increase the dividend yield. With that in mind, I’ve spotted one FTSE 250 stock that currently has a yield above 10%. Time to look in more detail!
The share price slide
The company I’m referring to is Ashmore Group (LSE:ASHM). Ashmore is a specialist emerging markets investment manager. Over the past year, the share price has fallen by 18%.
Part of this move lower can be attributed to the rocky situation in many emerging markets this year. We’ve seen surprise election results in places like India and South Africa. China is still experiencing an economic slowdown. War continues in the Middle East and Eastern Europe. As a result, navigating the financial markets within these areas has been incredibly difficult.
The way this is reflected in the results for Ashmore relates to assets under management (AUM). The more money it looks after, the more revenue it makes as it charges fees for managing the funds. However, AUM fell by $2.4bn in the latest quarter through to the end of June. In the quarter before that, it fell by another $2.1bn. This is one of the main reasons why the share price has underperformed.
Consistent dividends
The flipside to the falling share price is the rising dividend yield. The firm has been paying the same dividend for the past four years, and it doesn’t look like it’s going to change this year. As a result, the yield has jumped to 10.25%. This makes it one of the highest options in the FTSE 250 index.
The dividend payments could continue going forward, particularly if interest rates in developed markets fall. As the CEO mentioned in a recent update, the “easing of US monetary policy will further boost hard currency bonds and…a weaker dollar will underpin returns from local currency bonds and equities”.
Falling interest rates from developed nations will likely see investors look to emerging markets in order to try and get a higher return. This could benefit Ashmore, with more money flowing back into the company to manage. This would not only boost financial performance, but also put less pressure on paying the dividends.
High risk, but good reward
As a long-term investor, I always try to look past the current situation. It’s true that the company is going through a tough patch. But if I fast forward a couple of years, where interest rates could be lower and people are more confident to invest abroad, Ashmore could be doing very well.
Of course, it’s still a high risk stock. But I’m thinking about adding this to my overall portfolio which should allow any negative impact to be limited overall.
The post The yield on this FTSE 250 stock has jumped above 10%! Should I buy? appeared first on The Motley Fool UK.
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A 10% yield but down 70%! Time to buy this FTSE gem?
Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
