1 dirt-cheap FTSE 100 stock to buy now and hold!

Jabran Khan details a dirt-cheap FTSE 100 stock with an attractive dividend yield he would buy for his portfolio and hold on to.

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The FTSE 100 index has experienced more volatility than usual due to rising inflation, surging costs, the energy price crisis, as well as the unfortunate events in Ukraine. Despite this, I feel there are some excellent opportunities to add shares to my holdings currently. One stock I like the look of is M&G (LSE:MNG).

Asset management firm

M&G is a UK-based international savings and investment business. Its business is split into five core segments. It is worth noting that M&G was derived from a demerger from financial giant Prudential back in 2019. In three short years, it has become a fully fledged FTSE 100 member and possesses a market cap of close to £5.5bn.

As I write, M&G shares are trading for 215p. At this time last year, the shares were trading for 202p, which is a 6% return over a 12-month period. A recent excellent annual report boosted the M&G share price earlier this month.

FTSE 100 stocks have risks

I have two primary concerns with M&G. Firstly, one of its biggest attractions is its dividend yield (more on that later). Dividends aren’t guaranteed and can be cancelled at any time. This would affect any passive income I hope to make. In addition to this, recent rumblings of a potential stock market crash could affect earnings and payouts. I will continue to monitor developments, however.

Next, M&G is a relatively small fish in a very large, lucrative pond. Despite being a £5.5bn market cap business, there are many bigger, more established asset management and investment firms out there. This means M&G are at risk of losing business to the competition, which would, in turn, affect performance and payouts.

Why I like M&G

M&G has a juicy dividend yield of just under 9% currently and the shares look dirt-cheap to me. The FTSE 100 dividend yield average stands at between 3% and 4%. This is better than current inflation levels. The shares are trading on a price-to-earning ratio of just nine, which looks cheap to me.

The recent full-year report released by M&G made for excellent reading, in my opinion. Despite profit dipping from £788m to £721m, the company confirmed it hit all its demerger targets. The primary one was capital generation of £2.8bn in two years. It managed to achieve this early and also managed to save £145m a year ahead of schedule. It has already paid out lots in dividends but a £500m share buy back scheme will also boost the coffers of its investors.

M&G could also be well placed to benefit from current macroeconomic trends. The UK possesses an ageing population. This means the demand for life insurance and investment-related business could increase. This would boost M&G’s earnings and potentially increase payouts to investors too.

I like the direction M&G is heading in and I am especially buoyed by its dividend yield. This is why I recently purchased a small number of shares for my holdings and would consider adding more. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jabran Khan owns shares in M&G. The Motley Fool UK has no position in any of the shares mentioned. 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.

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