Investment manager M&G (LSE: MNG) has been a star high-yield FTSE 100 stock since it split from Prudential in 2019. But it hasn’t had an easy ride.
It has struggled to find a consistent house investment style, relying for some time instead on supposed star fund managers. The performance of these stars was mixed at best. It has also struggled with the rise of passive tracker funds or investors just doing it themselves.
Stellar dividend yields
For me, though, these factors have made M&G more attractive. This is because as its share price has struggled so its dividend yield has increased. And M&G dividends were already around the highest of any company in the FTSE 100.
At the end of 2019, the shares had a yield of 5%. At the end of both 2020 and 2021, this had increased to 9.2%. And at the end of 2022, it was 10.4%.
This 2022 figure followed the second interim dividend of 13.4p per share, making a total of 19.6p for the year. It was a 7% year-on-year rise, in line with M&Gâs policy of stable or increased dividends every year.
Solid fundamentals
As a UK-based investment company, M&G must maintain very solid financial foundations.
In its 2022 results, it showed generated operating capital of £821m, with improved underlying capital generation of £628m. This is one element of the resilience in its business model.
Another is that it maintained a Shareholder Solvency II coverage ratio of 199%. This ratio measures how well shareholders are protected against a company becoming insolvent. Coverage of 199% for an investment company is regarded as strong.
It’s true that M&G recorded a lower adjusted operating profit in 2022 than in 2021 — £529m against £721m. However, all but £20m of this difference was due to exceptional revaluations in its holdings, including foreign exchange.
New client funds flowing in
Underlying strength was further evidenced by the increases in the flows of funds into M&G in 2022. Its Heritage business (pensions, annuities, life, and savings) saw positive net client flows of £0.3bn. Its Asset Management business returned to net client inflows for the first time since 2018 — of £0.5bn. And £0.2bn of net client inflows went into its Wealth business.
For me, there are two main risks in the shares. The first is a major correction in the global investment environment. From early 2020 to late 2021, we saw this from the unexpected widespread onset of Covid-19. In early 2022, we saw it again with Russiaâs unexpected invasion of Ukraine. The global markets have become a more jittery place since then and other shocks could happen at any time.
The second is that M&G fails to deliver on its investment strategies. However, any such failure would likely hasten takeover bids and cause a big rise in the share price.
I already have holdings in the investment management sector and don’t want to increase its weighting in my portfolio. If I didn’t have these, I’d buy M&G shares today for their current and projected dividend yield. I’d also keep them on the possibility of a big rise in price on takeover rumours or reality.
The post 10%+ dividend yield! The blue-chip high-yield stock going cheap appeared first on The Motley Fool UK.
Don’t miss this top growth pick for the ‘cost of living crisis’
While the media raves about Google and Amazon, this lesser-known stock has quietly grown 880% – with a:
Greater than 20X increase in margins
Nearly 60% compounded revenue growth over 5 years – more than Apple, Amazon and Google!
A 3,000% earnings explosion
Of course, past performance is no guarantee of future results. However, we think it’s stronger now than ever before. Amazingly, you may never have heard of this company.
Yet there’s a 1-in-3 chance you’ve used one of its 250 brands. Many are household names with millions of monthly website visitors, and that often help consumers compare items, shop around and save.
Now, as the ‘cost of living crisis’ bites, we believe its influence could soar. And that might bring imminent new gains to investors who’re in position today. So please, don’t leave without your FREE report, ‘One Top Growth Stock from The Motley Fool’.
Claim your FREE copy now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#FFFFFF’);
})()
More reading
9%+ dividends! 3 high-yield shares Iâd snap up
10.4% yield! Should investors buy this FTSE 100 dividend stock?
Here’s how I could earn income of £2,000 a year from a £20k Stocks and Shares ISA
Best British dividend shares to buy in April
3 great FTSE 100 shares Iâd buy in April
Simon Watkins has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.