Invesco: The 14% Yield Doesn't Look Safe

Invesco has been one of the worst-performing stocks in the S&P 500 in recent years.
Despite that, it has continued with annual dividend hikes, leading to a 14% yield at present.
While the stock is arguably a deep value trading at less than 5x earnings, there's reason to think a dividend cut may happen sooner or later.
"[It's a] really bitter cocktail for an industry that never had to worry about fixed costs, fees or money showing up [...] The entire industry has been caught flat-footed. Nobody saw it coming. That sounds a little glib, but nobody acted to get around the corner first.” - Ben Phillips, strategist of Deloitte Consulting LLP discussing the asset management industry, as quoted here.
Asset manager Invesco (IVZ) has been one of the worst-performing stocks in the S&P 500 in recent years; shares are down 75% since early 2018. And it wasn't just the market crash that caused this either - the company had lost half its value through the end of 2019 as investors fretted about a declining industry and a questionable merger. Now, with the market crash and sliding assets under management, the stock has gotten cut in half... again.
That's left it with an eye-catching 14% dividend yield, and plenty of people thinking this is a high-probability turnaround play. And the logic makes sense to a certain degree. In fact, I'd really like to be able to endorse this one, as the stock has gotten decimated, yet there's still a real and highly-profitable business here:
Data by YCharts
As you can see, despite a raging bull market to end the 2010s, Invesco steadily trended lower and lower. With money flowing into passive funds and away from active managers, growth investors fled Invesco shares. Throughout 2018 and 2019, however, the company started to attract dividend investors, as it was one of the highest-yielding stocks in the S&P 500, paying a dividend in the 7% range.
With the stock down another 50% this year, it now yields 14%. So far,... Read more