Since it split from Prudential in 2019, things have not been easy for star dividend stock M&G (LSE: MNG). The demerger came just before the widespread onset of Covid at the beginning of 2020. This wreaked havoc on the financial markets until Russia’s invasion of Ukraine in 2022 caused even more uncertainty.
Global events aside, M&G has also suffered from a failure to establish a consistent and successful house investment style. It has also struggled with the rise of passive tracker funds or investors just doing it for themselves.
For me though, down 11% from their high this year, the shares look cheap.
Focus on shareholder rewards
In its 2022 results, the company declared a second interim dividend of 13.4p per share, up 9.8% from 12.2p a year earlier. Its total payout for 2022 was 7.1% higher, at 19.6p from 18.3p.
This meant a dividend yield for the year of 10.4%. In both 2021 and 2020, it was 9.2% — among the highest of any FTSE 100 firm.
Great for shareholders too is that M&G has a policy of stable or increased dividends every year.
Solid growth plans
CEO Andrea Rossi recently said M&G “will maintain our financial strength, simplify our business and deliver profitable growth.”
I feel the omens look good to achieve these aims, given some positives in 2022’s results. For instance, a total adjusted operating profit of £529m beat consensus analyst estimates. This was significantly helped by net client inflows in three key businesses.
Specifically, its Asset Management business returned to net client inflows for the first time since 2018 — of £0.5bn. Its Heritage business (pensions, annuities, life, and savings) saw positive net client flows of £0.3bn. And £0.2bn of net client inflows went into its Wealth business.
The company has set an end-2025 target to grow the wealth management business to over 50% of operating profit. At the same time, it intends to lower its leverage ratio to below 30% and generate £200m of cost savings.
Takeover rumours persist
Given its uncertain direction since its split from Prudential, and its reduced share price, takeover rumours abound.
Macquarie Group has strongly denied its interest in M&G, but other suitors may emerge, it seems to me.
In my view, such speculation, and the possibility of a fiercely contested hostile takeover bid, would push the shares higher.
There are risks in the share price, of course. One is a major correction in the global investment environment again. Another is that M&G fails to deliver on its investment strategies. However, any such failure would likely hasten takeover bids and cause a big rise in the share price.
I already have holdings in the investment management sector and do not want to increase its weighting in my portfolio. If I did not have these, then I would buy M&G shares today for their current and projected dividend yield. I would also have an eye on the possibility of a big price rise on takeover rumours or reality. That said, I invest in strong businesses for the long term and not simply on the chances of a takeover that might not happen.
