I’ll still hold my favourite FTSE 100 passive income stock even if its shares never rise

When I buy dividend stocks I hope to get some share price growth on top of the passive income they pay me. It doesn’t always pan out that way though. 

I’ve had almost no growth from my favourite FTSE 100 dividend stock, wealth manager M&G (LSE: MNG). I bought its shares on three occasions over the past year, and a quick glance at my online portfolio suggests I’m up a meagre 1.07% so far.

I won’t be the only investor who’s underwhelmed. The M&G share price is up just 4.57% over 12 months, while the FTSE 100 as a whole is up 11.51%. Over five years, M&G shares are down 10.84%. So why am I so fond of it?

The obvious answer is the dividend. Quite simply, M&G shares come with a dazzling trailing yield of 9.75%. That smashes the FTSE 100 average of 3.54%.

The dividend is unmissable for me

It’s a staggering rate of income. So staggering, that it makes investors suspicious. Typically, when yields head towards double digits, that’s a sign of trouble. Yields are calculated by dividing the dividend by the share price. So when a stock falls, the yield rises. A high yield can therefore suggest a struggling company.

Yet I wouldn’t say that M&G is struggling. In full-year 2023 it posted a 27.5% increase in pre-tax adjusted operating profit to £797m, beating consensus forecasts of £750m.

Despite that, the stock plunged more than 12% as investors were disappointed by its meagre 10th of a penny dividend hike, from 19.6p to 19.7p.

They experienced further pain in the first half of 2024, as adjusted pre-tax operating profits fell 3.8% to £375m. M&G also suffered £1.5bn in net outflows.

I might bag some growth too, one day

These two underwhelming results have kept a lid on the share price. However, I’m still getting a brilliant second income, and I think it looks sustainable. I hope that recent net outflows will soon become inflows, when the stock market shrugs off its latest bout of uncertainty and starts to recover.

Let’s see what happens once the Autumn Budget and US presidential election are out of the way. There’s a risk they could make things worse though.

While my portfolio shows me I’m up just 1.07%, it doesn’t reflect the impact of my reinvested dividends. Once included, they lift my total return from M&G to a more respectable 12.5%.

True, it’s not exactly Nvidia, but here’s the thing. I buy shares with a long-term view, which means a minimum five to 10 years, and ideally a lot longer.

M&G is forecast to yield 9.92% in 2024, rising to 10.2% in 2025. If correct, that should lift my total return north of 30% over the next two years. Dividends aren’t guaranteed but if that continues, I’ll double my money in less than eight years. And that’s assumes the M&G share price doesn’t rise at all. Imagine if it does.

The post I’ll still hold my favourite FTSE 100 passive income stock even if its shares never rise appeared first on The Motley Fool UK.

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Harvey Jones has positions in M&g Plc. 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.