One of the biggest dividend payers in my portfolio is M&G (LSE: MNG). This week brought news that the company will raise its interim payout, boosting the M&G dividend yield further.
With the yield already above 9% even before the announcement, this caught my eye. Although I own M&G shares already, could this be the moment to add some more and boost my passive income streams?
Positive news
The company has a dividend policy of trying to maintain or increase its annual shareholder payout.
However, dividends at any company are never guaranteed. So such dividend policies are statements of intent rather than necessarily a guide to what will actually end up happening.
It was therefore welcome news when the asset manager announced in its interim results yesterday (19 September) that it planned to boost its interim dividend per share from 6.2p to 6.5p, in line with policy.
Substantial increase
That amounts to a 4.8% increase, so I see that as substantial rather than merely a token gesture. It also affirmed that the dividend policy remains unchanged.
If the full-year dividend rises in line with the interim one (which may not happen) then we should be looking at a total M&G dividend for the year of around 20.5p per share. That would put the prospective dividend yield at around 10%.
Not only that, but if I bought today and the company raises its dividend further in coming years, the yield on my shares could keep rising.
Dividend support
But a dividend on its own tells us little if anything about the underlying health of a business. As an investor, one question I ask about income shares is how sustainable is the dividend?.
In the first half, adjusted operating profit before tax was up 31% from the same period last year, to £390m.
Assets under management fell slightly, but that was largely down to price movements, as there was a net inflow of client funds (excluding the company’s Heritage division).
The company struck a positive note about its medium-term outlook and said it is making good progress on hitting its 2025 financial targets. They could help fund more M&G dividend increases in future.
Possible risks
However, although things look fairly promising, there are still risks here. On one hand, demand for financial services is high, and M&G has a well-known brand plus a large customer base. Set against that though, a worsening economy could lead customers to withdraw funds.
That could result in lower revenues and profits for the firm. Although the inflow of funds in the first half was positive, it was still smaller than at the same point last year.
Double-digit yield
All things considered, I continue to see strengths in the M&G business that make me happy to keep my shareholding. The latest dividend increase is one more positive thing about holding the shares.
In fact, if I had spare cash to invest today, I would be happy to add some more of the FTSE 100 shares to my ISA.
