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It isn’t arduous 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 the moment, it provides buyers 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 have 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 think about shopping for the wealth supervisor at the moment?
Market-beating revenue
Wednesday’s (3 September) first-half outcomes have been stable sufficient. Adjusted working revenue earlier than tax climbed simply £3m to £375m, following an £8m overseas change loss in its asset administration arm. Extra encouragingly, adjusted revenue after tax jumped to £248m, a giant enchancment on the £56m loss posted beforehand. That was partly as a consequence of technical accounting changes. The group additionally reported robust internet inflows, suggesting clients nonetheless belief lively fund managers with their cash.
Over the previous 12 months the share worth has risen 22%, and it’s up round 60% over 5 years. That’s not unhealthy progress from a inventory most will in all probability be taking a look at for revenue. Dividends are on high of that. With a ahead price-to-earnings ratio of simply 10.25, the valuation nonetheless seems cheap.
Shareholder payouts
If an investor put £2,000 into the inventory at at the moment’s worth of 261.8p, they’d get round 763 shares after costs. In 2025, analysts count on M&G to pay a dividend per share of 20.6p. That may give them £157 in dividend revenue over the 12 months.
In the event that they reinvested that revenue again into the inventory to select up extra shares at roughly at the moment’s worth, they’d bag one other 60. That may elevate their holding to 823 shares. In 2026, with the dividend per share anticipated to rise to 21.1p, they’d accumulate round £173 on high of that.
This offers buyers a double revenue enhance. The dividend per share rises, however so does the variety of shares held, because of reinvesting. It’s a easy demonstration of the fun 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 buyers pulled money, and one other market sell-off may dent property beneath administration. Rising market volatility is all the time a hazard, and shareholder payouts may come beneath stress if money flows slip. Dividend progress 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 feel M&G is a stable revenue play. Its solvency ratio of 223% exhibits monetary resilience, and administration’s expectation of £2.7bn of working capital era 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 buyers searching for excessive revenue and with luck, some capital progress too.
