When I invested a relatively large sum (for me) in this FTSE 100 dividend share a couple of years ago, I had high hopes. So far, they’ve been exceeded.
The stock is wealth manager M&G (LSE: MNG), which was spun out from FTSE 100 insurer Prudential in 2019. Its early years as an independent company were bumpy, with the pandemic smashing stock markets in 2021, but lately it’s flown.
The M&G share price is up 30% in the last year. However, over five years it’s only up 35%, a period that included plenty of volatility. Yet I didn’t buy expecting the shares to climb in a straight line. The main attraction was the dividend yield, almost 10% at the time. At that rate, my capital could double in eight years without any share price growth. So far, I’ve bagged both. I’m up around 60%, with dividends reinvested.
The M&G dividend is generous
Very high yields can prove unsustainable if the board can’t generate the cash to fund them. I judged the M&G dividend to be affordable, and so far it has been reliable. The board has increased it for five consecutive years, and while future growth may be modest at 2%, I’m still expecting it to climb. As ever, there are no guarantees.
I certainly notice the difference when the dividend lands in my Self-Invested Personal Pension, or SIPP. Reinvesting each payment compounds returns, which is where dividend shares really shine.
M&G’s Q3 results, published on 5 November, were solid but not spectacular. Total assets under management rose 3% to £365bn, with net inflows for the year so far totalling £3.9bn.
Last week, the FTSE 100 dipped 1.64% as investors fretted over an AI bubble. The M&G share price fell a little faster, at 2.16%. We could be in for more volatility this week, nobody knows. Whatever happens, there’s no way I’ll sell. Instead, I’ll use any dip to up my stake and grab a higher yield. Here’s why.
Value and yield
Today, M&G shares trade at 264.1p. In 2024, the full-year dividend totalled 20.1p per share. Assuming it increases 2% in 2025, the payout will total 20.5p per share. Based on today’s share price, that’s a forward yield of 7.76%.
Now let’s say the next few weeks prove turbulent and M&G shares slump 10% to 237.7p. That would drive the forecast yield to an even juicier 8.62%, for new investors. A 20% share price drop to 211.3p would lift it to 9.7%. Wow. This illustrates the advantage of buying dividend shares during market dips. Lower entry prices not only improve capital growth potential, they also inflate the yield, enhancing long-term income.
It’s not without risks though. A stock market slump would hit assets under management and net inflows, and ultimately profits. A longer period of underperformance could imperil the dividend. M&G operates in a highly competitive market too, with plenty of companies after its business.
Long-term perspective
Today, M&G has a price-to-earnings ratio of just 10.6, making it look decent value. If the shares fall, it will look even better value, all other things being equal. I think it’s worth considering for income-focused investors even if markets don’t dip. But if they do, I’ll take advantage.
