Picture supply: Getty Pictures
Revenue buyers are all the time on the attention out for high-yielding dividend shares, significantly these on the FTSE 100. These blue-chip shares usually have a strong steadiness sheet and excessive money movement, making dividends extra dependable. So when a brand new inventory took high spot for yields on the index, I needed to test it out.
An enormous yield
World funding supervisor M&G (LSE: MNG) just lately moved above Phoenix Group to safe its spot because the highest-yielding inventory on the Footsie. In late March, Phoenix fell under 10% for the primary time in a month as its share price rose sharply.
Now, M&G’s skilled the alternative — a sudden price dip that despatched its yield hovering. It additionally just lately introduced its remaining yr dividend, up 2% from final yr. Collectively, these elements usually make for a compelling funding case: a low price and excessive yield.
However there could also be extra to the story.
A dividend newcomer
The issue with dividends is that they’re by no means assured and might be lower or lowered at any time. At present, M&G seems engaging as a result of its paying 20.1p on every £1.99 share. However dumping that a lot money on shareholders yearly comes at a excessive price — and when cash will get tight, dividends can get lower.
That’s why it’s important to test an organization’s observe report when purchasing for dividend shares. Firms that adhere to a strict dividend coverage usually have at the least 10 years of strong development with no cuts.
Being a comparatively new firm, M&G solely has a six-year historical past of dividend development. I wouldn’t write if off fully — each high dividend payer has to begin someplace — but it surely makes it tougher to belief.
So let’s see if it will possibly preserve that development.
Danger and figures
A key difficulty M&G is dealing with currently is buyer outflows, which amounted to £1.9bn within the newest 2024 outcomes. That’s in stark distinction to the inflows of £1.7bn loved the yr earlier than.
This may increasingly partly be as a result of a lot of its pension fund shoppers are rebalancing capital from shares into bulk buy annuities (BPAs). This pattern is pushed by stubbornly excessive inflation amid an enhancing financial system. If M&G can’t achieve extra publicity to this market, it could endure additional outflows.
But it nonetheless managed to report a 5% improve in operating profit in 2024 and reiterated its dedication to shareholder returns. It additionally elevated steering for 2025, elevating its cumulative financial savings goal by 15% from £200m to £230m.
With that form of confidence, I’d count on higher analyst scores, however the common 12-month price goal is simply 233p — a 16.7% rise. Nonetheless, JP Morgan put in an Obese score on the inventory final week with a price goal of 275p. That will equate to nearly a 50% capital achieve when including in dividends. Not a nasty return!
So regardless of the dangers, I feel M&G’s a inventory value contemplating for passive income in 2025. A yield above 10% is a uncommon discover on the FTSE 100, significantly when backed by an organization with promising development potential.
