Shares in emerging markets-focused asset manager Aberdeen Asset Management (LSE: ADN) slipped nearly 3% lower this morning, after the firm unveiled its interim results.
However, having taken a look at the Aberdeens figures, I reckon that the Scottish firm could be a better buy than last weeks strong performer, Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US), as Ill explain in this article.
Aberdeens underlying pre-tax profits rose by 25% to 270.2m during the first half of the year, while the firms interim dividend was hiked by 11% to 7.5p.
Aberdeen also announced a 100m share buyback to return surplus capital to shareholders and said that its adjusted operating margin rose from 43% to 44.7% during the first half of the year.
In the face of all this good news, why did the shares fall? The only sour note in Aberdeens interim results was the continued net new business outflow of 11.3bn translated, this means that customer withdrawals exceeded new deposits.
Aberdeen has suffered as a result of the recent poor performance of emerging market assets, but this trend could be starting to reverse. Despite the net outflow of funds, the total value of Aberdeens assets under management rose by 2.5% to 330.6bn at the end of March, compared to 323.3bn at the end of December.
Aberdeen is also taking steps to reduce its dependence on emerging markets: the firms acquisition of the Scottish Widows Investment Partnership last year has helped boost profits and improve diversity.
Analysts expect Aberdeens earnings per share to rise by around 33% this year, while the dividend is expected to rise by 10%, giving a forecast P/E of 13.5 and a prospective yield of 4.4%.
In my view, the firms shares are a buy.
Why would you sell Lloyds?
Lloyds issued a solid set of first-quarter results last week, trumpeting a 59% reduction in impairment charged, a 7% increase in net interest income and an increased CET1 ratio of 13.4%, considerably higher than most of its peers.
The banks chief executive Antnio Horta-Osrio also reiterated his intention to pay interim and final dividends in 2015.
Lloyds shares currently offer a prospective yield of 3.3%, rising to 5.1% next year, based on the latest City forecasts.
However, I suspect that most of the good news regarding Lloyds return to business as usual may now be in the price.
Although income seekers might do well to hold onto their Lloyds shares, I think growth opportunities will be relatively limited especially following the enforced disposal of the TSB business, which reduced the value of Lloyds loan book by 5% and took 6% from total customer deposits.
The latest consensus estimates suggest that Lloyds earnings per share will rise by around 5% in 2016 compared to 10% at Aberdeen. Similarly I expect Lloyds dividend growth to slow after 2016, when it is expected to account for more than half of Lloyds earnings per share.
In my view, Lloyds is quite fully valued at the moment, and while it remains a relatively low risk bank, I think growth prospects are more limited than at Aberdeen.
A third alternative?
Of course, we’ve seen in recent years that apparently safe financial stocks can be highly risky, and are increasingly heavily regulated.
If you’re looking to diversify your portfolio with dividend growth stocks operating in less risky sectors, I’d urge you to take a closer look at the stocks highlighted in “5 Shares To Retire On“.
These five shares have a strong history of income growth and could form the basis of a market-beating income portfolio.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.