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I’ve spent the final yr shopping for high-yielding FTSE 100 shares that I hope can pay me a super-sized second revenue in retirement.
With the FTSE 100 heading to new all-time highs, most have picked up by 15% or 20% in simply six to 9 months. With one exception. Wealth supervisor M&G (LSE: MNG).
I purchased my first stake final July, and when the shares confirmed indicators of life, I purchased it twice extra in November. That month I acquired my first dividend too. It was my largest holding, and a private favorite. For some time.
Struggling revenue share
M&G shares had carried out poorly because the firm was hived off from Asia-focused insurer Prudential in 2019. I like shopping for shares after they’re out of favour. That provides me a decrease entry worth and reduces danger. At the very least in principle.
Additionally, when an organization’s share worth falls, its dividend yield rises by default. M&G was paying revenue of greater than 9% a yr after I purchased it. I’d learn its firm stories and determined the dividend was sustainable.
I wasn’t deterred by the truth that M&G suffered a £2.5bn pre-tax loss in 2022, reversing the earlier yr’s £788m revenue. Belongings below administration fell 7.6% to £342bn, down from £370bn.
The board stated this was “pushed by detrimental market actions from the volatility skilled in markets all through a difficult yr”. I used to be assured by information that it was nonetheless on observe to generate £2.5bn in capital by 2024, whereas the board hiked the entire dividend by 7.1%, from 18.3p to 19.6p.
I made a decision markets have been lacking a trick, and this was my alternative to get in on the backside, with the intention of holding the shares for years and years, to provide these dividends time to compound and develop.
Nice yield, poor development
That’s nonetheless the plan, however I’ve been shocked and dissatisfied to see M&G buck the latest upwards pattern, and plunge whereas the FTSE 100 has been rising.
The M&G share worth is down 14.65% within the final month, whereas the FTSE 100 as an entire jumped 3.26%. Over 12 months, the inventory is up simply 2.24%. That’s marginally greater than the FTSE 100 1.57% however not precisely nice.
So did M&G ship a dismal set of outcomes? Fairly the reverse. On 21 March, it posted a 28% rise in adjusted working revenue earlier than tax to £797m, smashing consensus forecasts of £750m. Internet shopper flows, adjusted earnings and working capital technology all climbed.
But the board granted traders solely a tiny dividend hike, from 19.6p to 19.7p, an increase of a tenth of a penny. Given the trailing yield of just about 10%, I’m not complaining. Markets apparently take a distinct view.
M&G seems to be a bit like a worth lure, whose shares may by no means develop. Buying and selling at 16.07 occasions earnings, they appear totally valued. But I’m pleased with the yield and total firm path. I’d make investments extra, besides it’s one in every of my largest portfolio holdings, so I’ll simply maintain and bide my time.
My subsequent dividend of 13.2p per share is due on 9 Could. I’m trying ahead to reinvesting it to choose up a couple of extra M&G shares (and a bit extra second revenue too).
