I’ve flirted with M&G (LSE:MNG) shares for some time. The global investment manager currently offers investors a huge 9.8% dividend yield, making it the biggest yield on the FTSE 100.
Obviously that yield is massively attractive. But we know that big dividends can sometimes be a warning. And, of course, a dividend is by no means guaranteed — it can be changed or cut at anytime.
So, let’s take a closer look at this dividend giant. Should investors snap up this investment manager?
One year’s performance
Over the past 12 months, the M&G share price has fallen by 7%. So if I had invested £1,000 in the stock a year ago, today I’d have £930, plus dividends.
Thankfully, with the dividend yield being around 9% if I had bought a year ago, I’d have received £90 in dividends.
So, in terms of total returns, I’d be up £20 on my £1,000 investment. But with inflation in double digits for much of the past 12 months, I’d have hoped for more than 2% on my investment.
It’s interesting to note that the stock is also around 7% down on its launch price in 2019. Since its de-merger from Prudential plc in October 2019, it has been listed on the London Stock Exchange.
The dividends
M&G has the biggest dividend yield on the index right now, by about 1%. But just how safe is this dividend?
Well, from my calculations, it’s certainly not secure.
In 2020, the dividend was well-covered by earnings. Earnings per share came in at 44.4p and this covered the dividend per share of 18.2p more than twice over.
However, 2021 was a tougher year. The investment corporation only achieved 3.3p in earnings per share, but the dividend was raised to 18.3p. And in 2022, the company swung to a loss while the dividend rose to 19.6p per share.
The Solvency II ratio declined from 218% for 2021 to 199% in 2022 after incurring a loss after tax of approximately £1.62bn. This includes the impact from dividends, share buybacks, and the dilution from recognising deferred tax assets as a result of marking to market losses on its assets.
As the Solvency II ratio highlights, M&G has the capital to continue paying the dividend for several years, excluding the impact of huge losses. But the dividend has eaten away at the company’s capital.
A risk worth taking?
M&G expects performance to pick up in 2023 and 2024. Last year, capital generation tanked from £1.87bn in 2021 to a loss of £397m. But going forward, M&G says it’s on track to achieve £2.5bn worth of capital generation by 2024.
There’s clearly confidence within M&G’s top brass, indicated by the decision to hike the dividend by 7.1% to 19.6p per share in March and push through a £503m share buyback.
I wish this was one of the many stocks I added to my portfolio in March when financials tanked. But it wasn’t and it’s up 11% since then.
I do think this stock could be worth the risk, but I don’t have the capital to act right now.
The post If I’d invested £1,000 in M&G shares a year ago, here’s what I’d have now! appeared first on The Motley Fool UK.
Should you buy M&G shares today?
Before you decide, please take a moment to review this first.
Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.
It’s called ‘5 Stocks for Trying to Build Wealth After 50’.
And it’s yours, free.
Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.
And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.
That’s why now could be an ideal time to secure this valuable investment research.
Mark’s ‘Foolish’ analysts have scoured the markets low and high.
This special report reveals 5 of his favourite long-term ‘Buys’.
Please, don’t make any big decisions before seeing them.
Claim your free copy now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
I’d buy £4,000 of each of these dividend stocks, for £1,056 in annual income
FTSE 100 dividend stocks: How I’d aim for passive income of £130 a month
I’d invest £3,000 each in these 3 dividend shares for over £800 in annual income
How I’d invest £5 a day in cheap FTSE 100 stocks to build a £534 monthly income
These 2 proven passive income ideas already make me money!
James Fox has no position in any of the shares mentioned. The Motley Fool UK has recommended M&g 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.