What do you call a top dividend stock that’s generated plenty of share price growth as well? Ideal! Certainly as an investment idea, and I may have found it in FTSE 100 wealth manager M&G (LSE: MNG).
I had a good feeling about it when I added it to my Self-Invested Personal Pension (SIPP) three years ago, although that doesn’t really mean anything. I had a good feeling about Diageo, which I bought at the same time, and it’s been far from ideal.
Happily, I went big on M&G, and have been amply rewarded. But it is still worth buying today?
Why am I happy with this FTSE 100 stock?
At the time, M&G had one obvious attraction. It was an income behemoth, with a 10% yield. I was really keen to lock into that, but had one obvious concern. Was the dividend sustainable?
High yields are often a sign of a struggling share price. If the company struggles to fund the outsize payout, dividends cuts may follow.
Yet M&G looked okay to me. It only floated in 2019, after being spun off from FTSE 100 insurer Prudential, and early share price performance was a bit patchy. That actually tempted me, because the price-to-earnings (P/E) ratio was in single digits, suggesting value.
As a new company it didn’t have much of a dividend track history. But it did appear to have the capital strength to keep funding those dividends. So I took the plunge.
I was lucky with my timing. My online SIPP shows the M&G share price is up 63% since I bought it. So far, I’ve received six dividends and reinvested every single one. Once they’re included, I’ve doubled my money. The shares are up 25% over 12 months.
And these are very early days. I hope to hold the stock for three decades, not just three years. But investing isn’t all fun and games. At some point the M&G share price will inevitably slow or fall. Today, it’s a lot more expensive, with a trailing P/E of 26. However, the forward P/E is a more modest 13.9, which suggests earnings should climb nicely in 2026.
Is that stellar yield secure?
Alas, today’s buyers won’t bag a double digit yield. However, the stock is still forecast to year 6.25% this year. Management plans to increase shareholder payouts by a modest 2% a year going forward.
Adjusted operating profits before tax have been solid, but nothing to write home about:
- 2025 – £838m
- 2024 – £837m
- 2023 – £797m
- 2022 – £529m
- 2021 – £721m
M&G operates in a competitive market. As an active fund manager, it also has to fend off the threat from cheaper index-tracking exchange traded funds (ETFs). It generates hefty fees from commission on the assets it has under management, which will fall if we get a stock market correction or crash.
The board also has to keep generating lots of cash to pay those dividends. Happily, it still has capital strength in spades, with an exceptionally high Solvency II ratio of 242%, I don’t expect the shares to continue their strong run at today’s price, but still think M&G’s well worth considering for income-focused investors.
Should you invest £5,000 in M&g Plc right now?
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Harvey Jones owns shares in Diageo and M&G.
