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Once I invested a comparatively massive sum (for me) on this FTSE 100 dividend share a few years in the past, I had excessive hopes. Up to now, they’ve been exceeded.
The inventory is wealth supervisor M&G (LSE: MNG), which was spun out from FTSE 100 insurer Prudential in 2019. Its early years as an impartial firm had been bumpy, with the pandemic smashing inventory markets in 2021, however these days it’s flown.
The M&G share value is up 30% within the final 12 months. Nevertheless, over 5 years it’s solely up 35%, a interval that included loads of volatility. But I didn’t purchase anticipating the shares to climb in a straight line. The primary attraction was the dividend yield, nearly 10% on the time. At that charge, my capital may double in eight years with none share value progress. Up to now, I’ve bagged each. I’m up round 60%, with dividends reinvested.
The M&G dividend is beneficiant
Very excessive yields can show unsustainable if the board can’t generate the money to fund them. I judged the M&G dividend to be reasonably priced, and thus far it has been dependable. The board has elevated it for 5 consecutive years, and whereas future progress could also be modest at 2%, I’m nonetheless anticipating it to climb. As ever, there are not any ensures.
I definitely discover the distinction when the dividend lands in my Self-Invested Private Pension, or SIPP. Reinvesting every cost compounds returns, which is the place dividend shares actually shine.
M&G’s Q3 outcomes, printed on 5 November, had been strong however not spectacular. Complete belongings beneath administration rose 3% to £365bn, with internet inflows for the 12 months thus far totalling £3.9bn.
Final week, the FTSE 100 dipped 1.64% as traders fretted over an AI bubble. The M&G share value fell a bit sooner, at 2.16%. We might be in for extra volatility this week, no person is aware of. No matter occurs, there’s no means I’ll promote. As an alternative, I’ll use any dip to up my stake and seize a better yield. Right here’s why.
Worth and yield
Immediately, M&G shares commerce at 264.1p. In 2024, the full-year dividend totalled 20.1p per share. Assuming it will increase 2% in 2025, the payout will whole 20.5p per share. Primarily based on at this time’s share value, that’s a ahead yield of seven.76%.
Now let’s say the subsequent few weeks show turbulent and M&G shares hunch 10% to 237.7p. That may drive the forecast yield to an excellent juicier 8.62%, for brand spanking new traders. A 20% share value drop to 211.3p would carry it to 9.7%. Wow. This illustrates the benefit of shopping for dividend shares throughout market dips. Decrease entry costs not solely enhance capital progress potential, in addition they inflate the yield, enhancing long-term revenue.
It’s not with out dangers although. A inventory market hunch would hit belongings beneath administration and internet inflows, and in the end income. An extended interval of underperformance may imperil the dividend. M&G operates in a extremely aggressive market too, with loads of corporations after its enterprise.
Lengthy-term perspective
Immediately, M&G has a price-to-earnings ratio of simply 10.6, making it look first rate worth. If the shares fall, it is going to look even higher worth, all different issues being equal. I believe it’s value contemplating for income-focused traders even when markets don’t dip. But when they do, I’ll take benefit.
