Picture supply: Getty Pictures
It isn’t laborious to see the attraction of a dividend inventory like M&G (LSE: MNG), which presents one of many highest yields on the FTSE 100. At this time, it provides traders a bumper trailing yield of seven.68%. Higher nonetheless, that’s forecast to climb to 7.91% in 2025 and eight.19% in 2026. This dwarfs the returns from money however as ever with shares, the dangers are increased too.
I felt these dangers had been value taking and added the inventory to my Self-Invested Private Pension (SIPP) a few years in the past, and it’s paying off properly. However ought to revenue seekers take into account shopping for the wealth supervisor at the moment?
Market-beating revenue
Wednesday’s (3 September) first-half outcomes had been stable sufficient. Adjusted working revenue earlier than tax climbed simply £3m to £375m, following an £8m overseas trade loss in its asset administration arm. Extra encouragingly, adjusted revenue after tax jumped to £248m, an enormous enchancment on the £56m loss posted beforehand. That was partly on account of technical accounting changes. The group additionally reported robust web inflows, suggesting prospects nonetheless belief lively fund managers with their cash.
Over the previous 12 months the share value has risen 22%, and it’s up round 60% over 5 years. That’s not unhealthy development from a inventory most will most likely be for revenue. Dividends are on prime of that. With a ahead price-to-earnings ratio of simply 10.25, the valuation nonetheless seems to be cheap.
Shareholder payouts
If an investor put £2,000 into the inventory at at the moment’s value of 261.8p, they’d get round 763 shares after prices. In 2025, analysts anticipate M&G to pay a dividend per share of 20.6p. That might give them £157 in dividend revenue over the 12 months.
In the event that they reinvested that revenue again into the inventory to choose up extra shares at roughly at the moment’s value, they’d bag one other 60. That might elevate their holding to 823 shares. In 2026, with the dividend per share anticipated to rise to 21.1p, they’d acquire round £173 on prime of that.
This provides traders a double revenue enhance. The dividend per share rises, however so does the variety of shares held, due to reinvesting. It’s a easy demonstration of the thrill of compound returns from FTSE 100 revenue shares.
Funding dangers
No dividend is assured, and M&G isn’t with out its challenges. Web fund outflows hit £1.9bn final 12 months as jittery traders pulled money, and one other market sell-off might dent property underneath administration. Rising market volatility is at all times a hazard, and shareholder payouts might come underneath strain if money flows slip. Dividend development can also be anticipated to be modest, with dividends forecast to rise simply 2% a 12 months, which in actual phrases lags inflation.
Nonetheless, I believe M&G is a stable revenue play. Its solvency ratio of 223% reveals monetary resilience, and administration’s expectation of £2.7bn of working capital technology over the subsequent three years provides it scope to take care of dividends. I reckon M&G is properly value contemplating shopping for for long-term traders searching for excessive revenue and with luck, some capital development too.
