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After I invested a comparatively giant sum (for me) on this FTSE 100 dividend share a few years in the past, I had excessive hopes. Up to now, 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 had been bumpy, with the pandemic smashing inventory markets in 2021, however recently it’s flown.
The M&G share worth is up 30% within the final 12 months. Nevertheless, 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 principle attraction was the dividend yield, nearly 10% on the time. At that fee, my capital might double in eight years with none share worth development. Up to now, 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 to date 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 definitely 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, revealed on 5 November, had been strong however not spectacular. Complete property below administration rose 3% to £365bn, with web inflows for the 12 months to date totalling £3.9bn.
Final week, the FTSE 100 dipped 1.64% as buyers fretted over an AI bubble. The M&G share worth fell a bit of quicker, at 2.16%. We could possibly be in for extra volatility this week, no person is aware of. No matter occurs, there’s no means I’ll promote. As an alternative, I’ll use any dip to up my stake and seize a better 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. Based mostly on at the moment’s share worth, that’s a ahead yield of seven.76%.
Now let’s say the following few weeks show turbulent and M&G shares hunch 10% to 237.7p. That will drive the forecast yield to a good 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 earnings.
It’s not with out dangers although. A inventory market hunch would hit property below administration and web inflows, and in the end earnings. An extended interval of underperformance might imperil the dividend. M&G operates in a extremely aggressive market too, with loads of corporations after its enterprise.
Lengthy-term perspective
Immediately, M&G has a price-to-earnings ratio of simply 10.6, making it look first rate worth. If the shares fall, it would 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.
