Looking for a solid growth stock? Not a spectacular high-flyer, but one whose share price has been steadily climbing in recent years? And with an above-average dividend yield that looks pretty sustainable?
Personally, I think I’ve found all of those things in FTSE 100 wealth manager M&G (LSE: MNG). I’m sitting on a total return of 92% since adding this stock to my Self-Invested Personal Pension (SIPP) in July 2023, less than three years ago. The share price has climbed from 200p to 300p in that time, an increase of 50%. Reinvested dividends have done the rest.
It helped that M&G shares were yielding 10% when I bought them, which is an extremely high rate of dividend income. But it’s also a brilliant example of how income can turbocharge growth. The dividend hits my account twice a year, typically in May and October, and I really notice the difference. I’ve bought 3,028 shares from my own pocket. Today, I own 3,858. The additional 830 were bought from reinvested dividends.
Why do I like FTSE 100 income stocks so much?
I think many investors underestimate the power of FTSE 100 stocks. The index has grown nicely lately, rising 45% over the last five years.
That’s below the 77% increase on the S&P 500, but UK blue-chips pay more income. The average yield on the FTSE 100 is 3.3%, against roughly 1.1% for the S&P 500. That narrows the gap, especially for investors who target higher yielders like M&G.
Today, investors won’t get the same level of income as I did. The trailing yield is now 6.8%. That’s still pretty generous, and with luck, it’s only for starters.
The board is aiming to increase shareholder payouts by 2% a year. That’s forecast to lift the yield to 6.99% in 2026 then 7.2% in 2027. Dividends are never guaranteed, but I think M&G looks in decent shape to support them. Last year, its Solvency II coverage ratio hit 242%, up from 223% in 2024, driven by strong operating capital generation and favourable market movements. M&G only joined the FTSE 100 in 2019, but has increased shareholder payouts every year since. So what about the growth?
Can the M&G share price keep climbing?
That isn’t guaranteed either, of course. And I think the M&G share price could slow after such a strong run, that’s seen it climb 40% in the last 12 months. Yet with a forward price-to-earnings ratio of 12.4, I don’t think investors are overpaying today.
Obviously, these are volatile times, and if we get a wider stock market correction, M&G shares will feel it. It also operates in a fiercely competitive market and needs to keep finding new streams of business to maintain growth and keep the cash flowing. But while future share price gains may come in fits and starts, the steady stream of reinvested dividends should help total returns compound nicely over time.
Personally, I think M&G is one of the most compelling passive income opportunities to consider in the FTSE 100 right now. I’ll be watching closely to see whether it can sustain those dividends, while continuing to deliver some growth on top.
