A second income of £29,999 a year would transform most retirements. That’s a serious amount of money, especially if it comes on top of the State Pension and arrives free of tax inside an ISA. Building a portfolio capable of generating that level of income takes time and commitment, but isn’t beyond the reach of determined long-term investors. Is it worth the effort? I think it is.
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The first step is understanding how much capital is required. The answer depends on the average yield generated by the investments held.
- At a 4% yield, an investor would need £749,975 invested.
- At a 5% yield, the required total falls to £599,980.
- At a 6% yield, the figure drops to £499,983.
These are substantial sums, but they can be built up gradually over decades by investing in a spread of FTSE 100 shares offering both growth and dividend income. One stock that’s done particularly well for me lately is wealth manager M&G (LSE: MNG).
Why do I like this FTSE 100 dividend stock?
The M&G share price has climbed almost 25% over the last year. It also boasts a generous dividend, with a current trailing yield of 6.4%. The board plans to hike shareholder payouts by a modest 2% a year going forward. Forecasts suggests the yield will edge up to 6.6% in 2026 then 6.8% in 2027. That’s from a high starting point though.
The good news is that investors have got plenty of share price growth on top lately. The stock is up 27% over the last 12 months. I’ve held my shares for three years and they’ve climbed 53%, but my total return is closer to 80% once reinvested dividends are taken into account.
Can the momentum continue?
M&G looks a little expensive today, trading on a price-to-earnings ratio of around 23. Forecast earnings growth means the P/E is expected to fall to 13 over the next year. Even so, I suspect the shares may struggle to repeat the pace of recent gains. Stock performance tends to be cyclical, but with luck those dividends should keep flowing through the ups and downs. No dividend is guaranteed, though.
Traditional investment fund managers like M&G face intense competition from low-cost passive trackers like exchange-traded funds. That’s one risk. Here’s another. Stock market investors are nervous right now, and if we do get a dip or correction, that would hit M&G. The value of the funds it manages would inevitably fall, hitting fee income. Some clients may even pull their money, while new inflows could slow.
However, any dip could be a buying opportunity. I bought M&G shares when they were down, and locked into a bumper 10% yield.
I still think it’s well worth considering for income investors. Investors who share my concerns about the valuation might wait to see if the shares retreat at some point, and hand us a more attractive entry point.
Should you invest £5,000 in M&g Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if M&g Plc made the list?
Harvey Jones owns shares in M&G.
