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Buyers searching for a second earnings from dividend-paying FTSE 100 shares typically must sacrifice potential share worth progress. Is {that a} trade-off value making?
To seek out the reply, I checked out funding supervisor M&G (LSE:MNG), which presents one of many highest yields on the whole FTSE 100, at 9.13% on a trailing foundation.
Because it was hived off from blue-chip insurer Prudential in October 2019, floating at 225.2p a share, its shares have gone nowhere.
Actually, they’ve fallen 2.4% to in the present day’s 219.8p. Administration and buyers would have hoped for higher, however they’ve some compensation, within the form of dividends.
Underwhelming progress
A £10,000 funding in M&G on flotation day would have picked up 4,440 shares. These shares could be value £9,760 in the present day, a paper lack of £240.
However throughout these 5 years, M&G has paid out a complete of 111.7p per share in dividends. They’d have totalled £4,959.
That’s nearly half the preliminary funding recouped in shareholder payouts. Add that to the present worth of the shares, and the stake would now be value £14,719. Not dangerous going, contemplating the expansion no-show.
This means earnings from dividends can nonetheless ship the products even when capital progress falls flat. Though after all, few firms supply dividends fairly as excessive as this one.
Again on monitor
M&G, like most companies within the monetary sector, has had a tough experience. The pandemic battered asset values, inflation and rates of interest have shaken markets, and these days we’ve had Donald Trump’s tariff volatility.
As an lively fund supervisor, M&G has additionally confronted brutal competitors from the rise of low-cost passive trade traded funds.
However the enterprise isn’t standing nonetheless. It’s making a renewed push into bulk annuities administration and personal belongings — two areas with potential to drive future progress.
On 19 March, full-year outcomes confirmed M&G swung to a pre-tax lack of £347m in 2024, pushed by technical truthful worth changes.
Nonetheless, on an adjusted foundation, working revenue rose 5% to £837m, beating consensus estimates resulting from sturdy progress in asset administration.
Crucially, working capital era got here in at £933m, which ought to help the dividend. M&G expects to generate £2.7bn in capital over the following three years and is aiming for five% progress in annual income via to 2027.
Whereas double-digit yields will be precarious, this one appears to be protected for now, however as ever, there aren’t any ensures.
Modest outlook
Shareholder payouts gained’t rise quickly. M&G’s ultimate dividend was lifted to 13.5p, taking the overall for 2024 to twenty.1p. That’s an increase of simply 2% on 2023.
That modest charge of dividend progress may disappoint some, however that yield gained’t. Particularly when it’s been achieved in such a difficult setting.
M&G shares have risen 6% during the last yr and 13% within the final month alone, helped by rising market sentiment and Trump’s tariff climbdown.
Whereas volatility is more likely to stay, the dividend could look much more tempting as rates of interest fall and drag down the earnings paid by money and bonds. This might attract new buyers.
I maintain the inventory and suppose it’s value contemplating shopping for in the present day. M&G reveals that even when progress is elusive, high-yield passive earnings shares can nonetheless pay their approach.
