M&G‘s (LSE:MNG) been one of the FTSE 100‘s greatest dividend shares to buy in recent times. Not only have dividend yields smashed the market average since 2019. Shareholder payouts have risen steadily since the company was spun out of Prudential five years ago.
Source: TradingView
What makes M&G such an attractive share to me today is its double-digit dividend yield. For 2024, only Phoenix Group carries a larger yield on the Footsie today.
And as the chart below shows, City analysts expect cash rewards to keep rising to 2026 at least, pushing the yield even further above 10%.
Year
Dividend per share
Dividend growth
Dividend yield
2024
20.07p
2%
10.2%
2025
20.63p
3%
10.5%
2026
21.26p
3%
10.8%
However, before buying any dividend share, I need to think about how realistic current forecasts are. I also need to consider whether M&G’s share price will keep sinking, which could offset any large dividends.
Here’s my verdict.
Financial foundations
On first look, those predicted dividends on M&G shares appear somewhat fragile. This assessment’s based on the easy-to-calculate dividend cover ratio. As an investor, I’m looking for a wide margin of safety, namely a reading of 2 times and above.
Unfortunately, the predicted dividend for this year’s actually higher than estimated earnings. And while profits are tipped to surge in 2025 and 2026, dividend cover’s still weak, at 1.2 times and 1.3 times respectively.
In theory, this leaves dividend forecasts in danger if earnings disappoint. However, M&G has a cash-rich balance sheet to fall back on if profits underwhelm.
Its Solvency II capital ratio — a key signal of liquidity — was 210% as of June, double the regulatory requirement and up 7% year on year.
Encouragingly for future dividends, M&G’s also recently upgraded its three-year cash generation target, to £2.7bn from £2.5bn previously.
Robust outlook
On balance then, I think there’s a great chance that M&G will meet brokers’ dividend forecasts. Poor dividend cover in recent years has been frequent. Yet it hasn’t stopped the distribution of large and growing cash payouts.
But does this make the business a potential buy? As I say, its share price slumped from late March after the company went ex-dividend. And it’s continued to struggle since then as worries over the UK economy persist.
However, I expect M&G’s shares to recover strongly over time. As a leading provider of pensions and other investment products, I expect profits to steadily rise as an ageing population drives demand for retirement services.
Though it faces high competition, I feel the FTSE firm has the expertise and the brand recognition to capitalise on this opportunity.
The verdict
Source: TradingView
At 196p per share, M&G shares offer those huge 10%-plus dividend yields. But that’s not all for value chasers to get excited about. Its price-to-earnings growth (PEG) ratio for this year is just 0.4. Any reading below 1 suggests a share’s undervalued, based on expected earnings.
It’s not without risk. But, on balance, I think M&G’s a top dividend share to consider. And especially at today’s price.
The post 10%+ yields! Here’s the dividend forecast for M&G shares to 2026 appeared first on The Motley Fool UK.
Should you buy M&G now?
Don’t make any big decisions yet.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.
And he believes they could bring spectacular returns over the next decade.
Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows…
When such enormous changes hit a big industry, informed investors can potentially get rich.
So, with his new report, Mark’s aiming to put more investors in this enviable position.
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
More reading
These FTSE 100 stocks have 10% yields! Should I buy now?
£5k in savings? Here’s how I’d aim to build a rising passive income of £5,500 a month
£6,000 in savings? Here’s how I’d aim to turn that into £1,032 a month of passive income!
3 shares I’d consider for a Lifetime ISA
10.1% dividend yield! 1 share I’m eyeing for my Stocks and Shares ISA in November
Royston Wild has positions in Prudential Plc. The Motley Fool UK has recommended M&g Plc and 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.
