Is Aberdeen Asset Management plc (ADN) the Ultimate Retirement Share?

Aberdeen Asset Management is an impressive business, although its short history weakens its case as a retirement share; the Aberdeen-based company was only founded in 1983, which makes it very young when compared with peers such as Schroders plc (LON:SDR), which has been in business for more than 200 years. However, Aberdeen’s score of 22/25 is well deserved and reflects its strong growth, high profitability and strong cash generation, which underpins a dividend that has doubled since 2007 and which was covered 2.5 times by free cash flow in 2012.

Although Aberdeen Asset Management’s 2012 dividend yield of 2.7% is below the FTSE 100 average of 3.1%, a further increase is pencilled in this year that provides a forecast dividend yield of 3.4% at the firm’s current share price, providing an attractive level of return that should remain well-covered by earnings and cash flow — making it very safe.

What’s more, although Aberdeen’s 53% share price rise in 2012 makes it look expensive on a historic basis — with a price to earnings ratio (P/E) of 26 based on last year’s earnings — the company’s forecast earnings growth for 2013 gives it a forecast P/E of just 14.7, below the FTSE 100 average of 16. Forecasts are by their nature subject to change, but Aberdeen has delivered very strong growth in recent years and may be able to sustain this for a little longer yet.

My verdict
Aberdeen Asset Management has the potential to be an excellent retirement share, with a well-covered and progressive dividend policy, a rising yield, and a strong financial position. The company’s youth could be a slight concern, but Aberdeen’s management appears to be well on the way to creating a large, sustainable business.

2013’s top income stock?
The utility sector is known for its reliable, above-average dividends, but the Motley Fool’s team of analysts has identified one FTSE 100 utility share that they believe offers a particularly high-quality income opportunity.

The company in question offers a 5.7% dividend yield and the Fool’s analysts believe that it could be worth up to 850 pence per share — offering new investors a potential 20% gain on the current share price of around 700 pence.

The article Is Aberdeen Asset Management the Ultimate Retirement Share? originally appeared on Fool.com and is written by Roland Head.

Roland does not own shares in any of the companies mentioned in this article.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.