When I finally retire, I hope to receive a high and rising income from a portfolio of mostly FTSE 100 dividend stocks. So I’m buying all I can afford today.
Sadly, I’m no high roller. Typically, I invest smaller sums of £1,000, or £2,000, whenever I have cash to spare. I’d love to invest bigger sums but that’s how it is.
Invest when I have the cash
One of my favourite passive income stocks is wealth manager M&G (LSE: MNG), which currently comes with a blockbuster yield of 8.66%.
That’s a brilliant rate of income. It will only look better if interest rates are cut and savings rates and bond yields slide as a result.
Dividends are never guaranteed though. Ultra-high yields like this one can be particularly suspect, but I think there’s a good chance it can come through. M&G’s most recent results were published way back in September. Sadly, we don’t have anything more recent, but they showed the company recovering from the stock market volatility of 2022.
First-half adjusted operating profits jumped by almost a third to £390m, as client inflows increased. Hgher interest rates boosted profits in its annuity business unit.
Better still, as far as funding the dividend is concerned, operating capital generation of £505m easily beat estimates of £328m. The board said M&G was on track to meet its 2024 operating capital generation target of £2.5bn for 2024, and is making good progress on its 2025 financial targets. We’ll know more when full-year results are published on 21 March.
Consensus forecasts suggest that M&G shares will yield a mighty 9.11% in 2024. At that level of income, I’d double my money in eight years purely by reinvesting my dividends, even if the share price doesn’t rise at all.
An unmissable yield, in my view
By contrast to many other FTSE 100 high yielders, M&G has been showing signs of life on this score. Its shares are up 12.64% over the last 12 months. They comfortably outpaced the FTSE 100 as a whole, which fell 2.82% over the same period.
Also by contrast, other financials have done poorly, with Aviva climbing just 0.86%, Legal & General Group falling 6.03% and Schroders plunging 18.32%.
M&G shares have had a bumpy ride since the company spun off from Prudential in October 2019, but they’re showing signs of promise. They don’t look too expensive either, trading at 10.4 times forecast 2024 earnings.
I’m hoping they’ll climb higher when interest rates fall and the recovery hopefully kicks in. Again, there are no guarantees. If investors decide US tech giants like Nvidia have flown too high, M&G will no doubt crash to earth with the rest of the market.
Yet when I get my next £2,000 to hand, it’ll be high on my buy list. I already hold 3,093 M&G shares worth just over £7,000. At today’s price of 2.264p, my £2k would buy me another 883.
If they yield 9.1%, my new purchases would give income of £182 a year. That’s on top of the £637 I’m already hoping to get. That’s a combined second income of £819 and if M&G stays on track, it should build nicely over time.
