FTSE 250 funding supervisor abrdn (LSE: ABDN) paid a 14.6p a share dividend final yr. On the present inventory price of £1.49, it offers a yield of 9.8%. This is without doubt one of the highest out there in any main FTSE index.

The agency’s paid the identical dividend yearly starting in 2020. In fact, all corporations face dangers, and abrdn’s no totally different.

The primary one for my part is that its ongoing reorganisation fails to progress because it desires. Moreover, a renewed surge in the price of residing may trigger traders to withdraw funds from the agency.

Nevertheless, analysts forecast it would pay a dividend of 14.6p this yr, subsequent yr, and in 2026.

How a lot passive revenue might be made?

Passive revenue’s cash constructed from minimal each day effort, corresponding to from share dividends. The one actual effort concerned right here is selecting the shares within the first place, after which monitoring their progress periodically.

I started investing in shares over 30 years in the past with round £9,000. The typical UK financial savings quantity is £11,000. And the typical quantity in a UK financial savings account is £17,000.

So taking just below the imply common of this — £12,000 — for example would make £1,176 within the first yr at 9.8%.

Over 10 years on the identical common yield, abrdn shares would pay £11,760 in dividends. And over 30 years on the identical foundation this may rise to £35,280.

A really good return, however it may very well be far more with a regular technique used to maximise dividend good points.

The ‘miracle’ of compounding

Relatively than taking the dividends out of the funding yearly and spending them, they can be utilized to purchase extra abrdn shares as an alternative. That is known as ‘dividend compounding’ and is similar fundamental concept as permitting curiosity to accrue in a checking account.

Beginning once more with £12,000 in abrdn shares – however reinvesting the dividends – would make £19,846, not £11,760 in dividends.

And over 30 years, given the identical common 9.8% yield, a further £212,296 in dividend returns would have been made, not £35,280!

Including within the preliminary £12,000 funding, the abrdn holding would pay £21,981 a yr in dividends, or £1,832 each month!

Are the shares additionally good worth?

It’s vital to do not forget that yields change as share costs transfer and dividend funds alter. This is the reason the small effort concerned in periodically checking inventory holdings is nonetheless important.

If a share’s now not delivering the yield an investor desires, it may be offered. One other high-yielding inventory might be purchased as an alternative. To minimise the probabilities of dropping cash on any share price sale, I search for shares that seem undervalued.

In abrdn’s case, it trades on the backside of its peer group on the important thing price-to-earnings (P/E) inventory valuation measure.

Its P/E of 8.4 could be very low cost in comparison with the competitor common of 28.1. These comprise RIT Capital Companions at 11, M&G at 16.9, Bridgepoint Group at 37.8, and Authorized & Common at 46.7.

Will I purchase the shares?

I already personal the inventory and can quickly add to my holding primarily based on its very excessive yield and notable undervaluation.