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Earnings buyers are at all times 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 move, 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 beneath 10% for the primary time in a month as its share worth rose sharply.
Now, M&G’s skilled the other — a sudden worth dip that despatched its yield hovering. It additionally just lately introduced its remaining yr dividend, up 2% from final yr. Collectively, these components usually make for a compelling funding case: a low worth 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 could be lower or lowered at any time. Presently, M&G seems to be enticing 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 crucial to test an organization’s monitor document when looking for dividend shares. Firms that adhere to a strict dividend coverage usually have no less than 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 start out someplace — but it surely makes it more durable to belief.
So let’s see if it will probably keep that development.
Threat and figures
A key concern M&G is dealing with these days 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 will partly be as a result of lots of its pension fund purchasers are rebalancing capital from shares into bulk buy annuities (BPAs). This development is pushed by stubbornly excessive inflation amid an enhancing financial system. If M&G can’t acquire extra publicity to this market, it might undergo additional outflows.
But it nonetheless managed to report a 5% improve in working revenue in 2024 and reiterated its dedication to shareholder returns. It additionally elevated steerage for 2025, elevating its cumulative financial savings goal by 15% from £200m to £230m.
With that sort of confidence, I’d anticipate higher analyst scores, however the common 12-month worth goal is barely 233p — a 16.7% rise. Nonetheless, JP Morgan put in an Chubby ranking on the inventory final week with a worth goal of 275p. That will equate to virtually a 50% capital acquire when including in dividends. Not a nasty return!
So regardless of the dangers, I believe M&G’s a inventory value contemplating for passive revenue in 2025. A yield above 10% is a uncommon discover on the FTSE 100, significantly when backed by an organization with promising development potential.
