LONDON -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.
To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.
Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.
So this series aims to identify appealing FTSE 100 investment opportunities, and today I'm looking at Aberdeen Asset Management (LSE:ADN), which manages assets for both institutions and private individuals.
With the shares at 432 pence, the company's market cap. is £5,192 million.
This table summarizes the firm's recent financial record:
|Year to September||2008||2009||2010||2011||2012|
|Net cash from operations (£m)||65||17||213||366||369|
|Adjusted earnings per share||9.45p||6.52p||14.09p||20.13p||24.45p|
|Dividend per share||5.8p||6p||7p||9p||11.5p|
The shares of Aberdeen Asset Management have been shooting up for some time and the recent half-year results did much to underpin that movement, with a 13% rise in assets under management to 212 billion, a 25% rise in revenue to £516 million, a 43% rise in underlying earnings per share and, to headline the good news, a 36% dividend increase.
According to the directors, the good results reflect wider stock market strength, driven by a steady flow of investors returning to riskier assets like shares. But the firm's success also seems to rely on its uncomplicated approach to investing its clients' money. Rather than overtrading or using arcane investment techniques, Aberdeen Asset Management tries to identify good companies, then simply buys the shares and holds them.
That seems like a winning strategy in a steadily improving macro-economic environment to me, so I'm optimistic about the firm's total-return prospects from here.
Aberdeen Asset Management's total-return potential
Let's examine five indicators to help judge the quality of the company's total-return potential:
1. Dividend cover: adjusted earnings covered last year's dividend just over twice. 4/5
2. Borrowings: there is net cash on the balance sheet. 5/5
3. Growth: growing cash flow strongly supports rising revenue and earnings. 5/5
4. Price to earnings: a forward 12 compares well to growth and yield expectations. 4/5
5. Outlook: good recent trading and a cautiously positive outlook. 4/5
Overall, I score the firm 22 out of 25, which encourages me to believe it has potential to out-pace the wider market's total return going forward.
There's a good showing on all of my quality and value indicators here, which encourages me to believe that, yes, I should invest in Aberdeen Asset Management.
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