It isn’t hard to see the appeal of a dividend stock like M&G (LSE: MNG), which offers one of the highest yields on the FTSE 100. Today, it gives investors a bumper trailing yield of 7.68%. Better still, that’s forecast to climb to 7.91% in 2025 and 8.19% in 2026. This dwarfs the returns from cash but as ever with stocks, the risks are higher too.
I felt those risks were worth taking and added the stock to my Self-Invested Personal Pension (SIPP) a couple of years ago, and it’s paying off nicely. But should income seekers consider buying the wealth manager today?
Market-beating income
Wednesday’s (3 September) first-half results were solid enough. Adjusted operating profit before tax climbed just £3m to £375m, following an £8m foreign exchange loss in its asset management arm. More encouragingly, adjusted profit after tax jumped to £248m, a big improvement on the £56m loss posted previously. That was partly due to technical accounting adjustments. The group also reported strong net inflows, suggesting customers still trust active fund managers with their money.
Over the past 12 months the share price has risen 22%, and it’s up around 60% over five years. That’s not bad growth from a stock most will probably be looking at for income. Dividends are on top of that. With a forward price-to-earnings ratio of just 10.25, the valuation still looks reasonable.
Shareholder payouts
If an investor put £2,000 into the stock at today’s price of 261.8p, they’d get around 763 shares after charges. In 2025, analysts expect M&G to pay a dividend per share of 20.6p. That would give them £157 in dividend income over the year.
If they reinvested that income back into the stock to pick up more shares at roughly today’s price, they’d bag another 60. That would lift their holding to 823 shares. In 2026, with the dividend per share expected to rise to 21.1p, they’d collect around £173 on top of that.
This gives investors a double income boost. The dividend per share rises, but so does the number of shares held, thanks to reinvesting. It’s a simple demonstration of the joys of compound returns from FTSE 100 income stocks.
Investment risks
No dividend is guaranteed, and M&G isn’t without its challenges. Net fund outflows hit £1.9bn last year as jittery investors pulled cash, and another market sell-off could dent assets under management. Rising market volatility is always a danger, and shareholder payouts could come under pressure if cash flows slip. Dividend growth is also expected to be modest, with dividends forecast to rise just 2% a year, which in real terms lags inflation.
Still, I think M&G is a solid income play. Its solvency ratio of 223% shows financial resilience, and management’s expectation of £2.7bn of operating capital generation over the next three years gives it scope to maintain dividends. I reckon M&G is well worth considering buying for long-term investors seeking high income and with luck, some capital growth too.
