Up 33% in a year and still yielding 7.5%! Is this FTSE 250 dividend growth stock a screaming buy?

I’ve had my eyes on a FTSE 250 stock that’s been offering double-digit yields with huge recovery potential. Yields of that size are often a sign of trouble, and that’s certainly the case with troubled asset manager Aberdeen Group (LSE: ABDN).

The asset manager’s story has been far from smooth since its 2017 merger with Standard Life misfired. The deal, which created one of the UK’s biggest asset managers, ran into trouble early on. Losing a £25bn mandate from Lloyds and the daft rebrand to abrdn didn’t help. The yield rocketed, but mostly because the share price was falling rather than the dividend growing.

The shares are bouncing back

It started to settle down last year but one thing stopped me from buying it. I already had outsized exposure to financials through FTSE 100 names like M&G and Phoenix Group Holdings, which also combined stagnating share prices with supersized yields.

Now the sector is back. M&G and Phoenix are up 30% and 25%, respectively, over the last year. Aberdeen has outpaced them both, rising 34%. With a current trading yield of 7.25%, its total return could top 40%. That’s a decent result for long-suffering investors, but the shares are still down 25% over five years.

First-half results, published on 30 July, were a mixed bag. Adjusted operating profit dipped 2% to £125m and net operating revenues fell 6% to £628m. But there was more positive news from fund platform Interactive Investor, a recent acquisition, where profits rose 25% to £69m, helped by record trading volumes.

The investment division saw a modest 3% profit increase but the advisory division struggled, with profits down 35% on higher expenses and falling revenues.

Aberdeen’s transformation programme delivered £137m in savings so far. It aims for at least £150m by year-end. Chief executive Jason Windsor said progress was on track but clearly, there’s still some way to go.

Income is high but not rising

Despite that eye-catching yield, the recent dividend share track record is disappointing. The board slashed it by a third in 2020, from 21.6p to 14.6p, and it’s been frozen for the last four years. With the board holding the 2025 interim dividend steady at 7.3p, it looks like another freeze this year. There are clearly other uses for the money, but investors will want to see the dividend per share move upwards eventually.

With interest rates expected to fall, high-yield stocks like Aberdeen become more attractive. Trading at a 13.36 times price-to-earnings ratio, the shares remain decent value, although not a stunning bargain. It’s worth noting that global stock markets are trading close to records high right now. Like every asset manager, Aberdeen could take a beating if we get a sell-off in the weeks ahead, as some are warning.

So is it a screaming buy today? I wouldn’t go that far. Aberdeen still has plenty to prove and the shares may idle for some time. But for income seekers with patience and a long-term view, it’s a stock to consider buying. I’ve made my choices elsewhere in the sector and will stick with them.