Ninety One Group's Dividend Gamble: High Yield or Overextended?

The financial services sector has long been a battleground for investors seeking stable dividends, but few companies in the UK market currently offer a yield as compelling as Ninety One Group (LON:N91). With its latest dividend hike of 6.3% to £0.068 per share, the asset manager now sports a dividend yield of 6.8%—nearly triple the 2.8% average of its Capital Markets peers. Yet behind this attractive payout lies a complex financial picture. Is this a sustainable high-yield opportunity, or a risky bet on a firm struggling to grow? Let's dissect the numbers.

Cash Flow Resilience: A Silver Lining in a Challenging Year

The company's cash flow performance in 2024 and 2025 reveals pockets of strength amid broader headwinds. Operating cash flow jumped from £172 million to £318 million over this period, a 85% increase, thanks to cost discipline and higher fee-based income. This improvement, paired with a £169 million net cash gain in 2024 and £314 million in 2025, has bolstered its liquidity to £600 million by late 2025.

However, the firm's investing and financing cash flows remain negative, reflecting cautious capital allocation. Net outflows of £9.4 billion in 2024 (improving to £4.9 billion in 2025) continue to strain assets under management (AUM), which dipped 3% to £126 billion before recovering slightly in 2025. While this trend poses risks, the firm's free cash flow per share has held steady at £0.2139, suggesting it can fund dividends without overleveraging.

Payout Ratio: A Tightrope Walk

Ninety One's dividend payout ratio—a key sustainability metric—currently sits at 71% of earnings, with cash flow coverage at a healthier 34.8%. Analysts project earnings per share (EPS) growth of 2.7% in 2025, which could push the payout ratio to 76%. While this remains within safe limits, it's worth noting that EPS has stagnated for five years, hovering around 18 pence. A dividend yield exceeding EPS growth by such a wide margin raises questions about long-term affordability.

The company's short dividend track record (only five years of consistent payments) also adds uncertainty. While the payout has grown steadily from £0.118 to £0.135 annually since 2020, this period coincides with a broader market shift toward defensive, high-yield plays. Should investor sentiment shift, Ninety One's reliance on dividends to attract capital could backfire.

Earnings Growth: Stuck in Neutral

The firm's core profitability metrics tell a story of moderation. Adjusted operating profit fell 8% to £190.5 million in 2024, with margins compressing to 32% from 32.7%. Even with 2025's margin recovery to 31.2%, this reflects persistent pressure from net outflows and low-interest-rate environments. Revenue growth remains anemic, with quarterly figures rising just £14 million over the past year.

In contrast to its dividend ambitions, the firm's ability to drive top-line growth is underwhelming. Its focus on inflation-linked strategies and sustainable equities—highlighted in recent reports—has yet to translate into meaningful AUM gains. The £12 billion decline in average AUM since 2023 underscores the challenge of retaining assets in a competitive market.

Risks: Outflows, Margin Pressures, and a Fragile Sector

Two critical risks cloud Ninety One's prospects. First, its net outflow problem shows no sign of abating. While 2025's outflows halved from 2024, the firm still faces redemptions across key regions like the UK and Americas. Second, margin pressures loom large. The 2024 drop in adjusted operating profit highlights how thin margins can squeeze returns further in a downturn.

Adding to these concerns, the Capital Markets sector faces broader headwinds. Rising interest rates could deter investors from Ninety One's fixed-income and equity strategies, while regulatory scrutiny over ESG fund performance may hurt its sustainability offerings.

Is the Dividend Justifiable?

On one hand, Ninety One's dividend appears sustainable in the short term. Its cash flow generation, though uneven, supports current payouts, and the payout ratio remains manageable. The 6.8% yield also offers a compelling income play for conservative investors, especially compared to the sector's meager 2.8%.

On the other hand, the firm's lack of EPS growth and reliance on dividends to attract investors create long-term vulnerabilities. A prolonged downturn in AUM or a rise in outflows could force a dividend cut, especially if margins continue to shrink.

Investment Takeaway

Ninety One Group is a high-yield, high-risk proposition. Investors seeking income can't ignore its 6.8% yield, but they must accept the trade-off: limited capital appreciation and exposure to asset management industry risks. For income-focused portfolios with a 3–5 year horizon, the dividend's sustainability hinges on AUM stabilization and margin resilience.

Backtest the performance of LON:N91 when 'buy condition' is triggered at each quarterly earnings announcement and 'hold for 30 trading days', from 2020 to 2025.

However, those prioritizing growth should look elsewhere. The firm's stagnant earnings and competitive challenges make it a laggard in its sector. Avoid it if you need capital gains, but consider it as a dividend play only after stress-testing its cash flow assumptions.

The verdict? Ninety One's dividend is a gamble—not a sure bet. Proceed with caution.