I look to buy quality stocks that boost my passive income stream through dividends, and that can grow to continue doing so for the long term. I believe FTSE 100 incumbent M&G (LSE:MNG) is one such stock. Here’s why I added the shares to my holdings.
Savings and investments
As a quick reminder, M&G is an international savings and investment business. Born out of a demerger from Prudential in 2019, it has impressively grown into a £5bn-plus market cap business, and has entered the FTSE 100, which is the premier index here in the UK.
So what’s happening with M&G shares currently? Well, as I write, they’re trading for 208p. At this time last year, the stock was trading for 215p, which is a 3% decline over a 12-month period. Due to recent geopolitical and macroeconomic issues, lots of FTSE 100 stocks have pulled back much more than just 3%.
Risks to note
Firstly, the current economic crisis in the UK could affect the size of M&G’s funds. If people begin to withdraw their money it could affect performance and any returns I hope to receive as a shareholder.
Next, dividends are not guaranteed and can be cancelled at any time at the discretion of the business. This can be due to poor performance, as well as external events such as a pandemic like in 2020, or a financial crash like the one in 2008.
Finally, it is worth remembering that M&G has only been a fully fledged business for three years, after its demerger as noted above. However, it does have a sizeable amount of assets and its growth journey to date has been remarkable.
Why I bought M&G shares
Firstly, I look at the level of dividends I will be receiving when buying the shares. This is best reviewed by a dividend yield. M&G’s current yield is one of the highest on the index and stands at close to 9%. This is close to current soaring inflation levels. It is worth noting that the FTSE 100 average yield is 3%-4%.
Next, I like the look of M&G’s business model. Its policy is to at least maintain dividends annually but ideally increase them. These dividends are underpinned by performance. M&G has over £350bn worth of assets. Profits are made from managing these funds. When funds are that big, even small transactions turn into chunky profits. These profits turn into dividends for shareholders like me.
Finally, I believe M&G is perfectly positioned to benefit from current demographic trends in the UK over the long term. The UK has an ageing population and lots has been made in recent years about saving and investing for the future. This could result in M&G seeing its asset value increase, in turn driving up performance and returns too.
My investment strategy has always been to buy and hold for the long term. I will apply that to M&G shares for my holdings and expect to receive consistent returns as the business continues its impressive growth trajectory.
