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Once I invested a comparatively massive sum (for me) on this FTSE 100 dividend share a few years in the past, I had excessive hopes. Thus far, they’ve been exceeded.
The inventory is wealth supervisor M&G (LSE: MNG), which was spun out from FTSE 100 insurer Prudential in 2019. Its early years as an impartial firm have been bumpy, with the pandemic smashing inventory markets in 2021, however currently it’s flown.
The M&G share worth is up 30% within the final 12 months. Nonetheless, over 5 years it’s solely up 35%, a interval that included loads of volatility. But I didn’t purchase anticipating the shares to climb in a straight line. The primary attraction was the dividend yield, virtually 10% on the time. At that charge, my capital may double in eight years with none share worth development. Thus far, I’ve bagged each. I’m up round 60%, with dividends reinvested.
The M&G dividend is beneficiant
Very excessive yields can show unsustainable if the board can’t generate the money to fund them. I judged the M&G dividend to be inexpensive, and up to now it has been dependable. The board has elevated it for 5 consecutive years, and whereas future development could also be modest at 2%, I’m nonetheless anticipating it to climb. As ever, there aren’t any ensures.
I actually discover the distinction when the dividend lands in my Self-Invested Private Pension, or SIPP. Reinvesting every cost compounds returns, which is the place dividend shares actually shine.
M&G’s Q3 outcomes, printed on 5 November, have been strong however not spectacular. Complete property beneath administration rose 3% to £365bn, with internet inflows for the 12 months up to now totalling £3.9bn.
Final week, the FTSE 100 dipped 1.64% as buyers fretted over an AI bubble. The M&G share worth fell somewhat sooner, at 2.16%. We might be in for extra volatility this week, no one is aware of. No matter occurs, there’s no means I’ll promote. As a substitute, I’ll use any dip to up my stake and seize the next yield. Right here’s why.
Worth and yield
Immediately, M&G shares commerce at 264.1p. In 2024, the full-year dividend totalled 20.1p per share. Assuming it will increase 2% in 2025, the payout will whole 20.5p per share. Primarily based on at this time’s share worth, that’s a ahead yield of seven.76%.
Now let’s say the subsequent few weeks show turbulent and M&G shares hunch 10% to 237.7p. That may drive the forecast yield to a fair juicier 8.62%, for brand spanking new buyers. A 20% share worth drop to 211.3p would raise it to 9.7%. Wow. This illustrates the benefit of shopping for dividend shares throughout market dips. Decrease entry costs not solely enhance capital development potential, in addition they inflate the yield, enhancing long-term revenue.
It’s not with out dangers although. A inventory market hunch would hit property beneath administration and internet inflows, and in the end income. An extended interval of underperformance may imperil the dividend. M&G operates in a extremely aggressive market too, with loads of firms after its enterprise.
Lengthy-term perspective
Immediately, M&G has a price-to-earnings ratio of simply 10.6, making it look respectable worth. If the shares fall, it should look even higher worth, all different issues being equal. I feel it’s value contemplating for income-focused buyers even when markets don’t dip. But when they do, I’ll take benefit.
