With a 9.6% yield, are M&G shares the FTSE 100’s best income buy?

M&G shares gain a little after H1 figures beat expectations, and the interim dividend rises by 5%. Forecasts say there’s more to come.

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M&G (LSE: MNG) shares ticked up by 4.5% on Wednesday (20 September) after the investment manager raised its interim dividend by 5%, but they fell back a bit later in the day.

Analysts have a 9.6% dividend yield forecast for the full year. And if we get a similar hike in the final dividend, we could see it rise above 10%.

Despite these big dividend yields, M&G shares have lost 10% since the company was split out from Prudential in 2019.

Passive income

To me, M&G looks like an ideal candidate to earn some long-term passive income.

I can understand why it might be out of favour with stock pickers right now, though. The whole investment business is suffering under high inflation, and folks have less spare cash to hand over to the likes of M&G to manage for them.

Still, we just had surprise fall in UK inflation. It’s not a big dip, with year-on-year rises dropping to 6.7% in August. But economists had been expecting a rise. And it’s all a short-term thing anyway, isn’t it?

H1 results

Until markets turn bullish, though, M&G and firms in the same business could come under more pressure. In fact, it looks like the markets expect exactly that, and fear a dividend cut.

But the H1 results released on Wednesday beat expectations. They included a 31% jump in adjusted operating profit, and a 17% rise in operating capital generation.

Assets under management did fall, from £342bn at the end of 2022, to £333bn. And that’s got to be a cause for concern. No wonder, then, that CEO Andrea Rossi spoke of a “backdrop of ongoing market volatility and uncertainty.”

Outlook

Rossi did add that the company has “made progress against all three pillars of the strategy that we launched in March.”

M&G is still in the process of transformation, which might seem strange for a company that only became independent four years ago. But those four years have been some of the most traumatic we’ve been through in a long time.

The board aims for business simplification, cost savings, and a reduction in leverage to below 30%. And it says it’s on track to hit operating capital generation of £2.5bn by 2024.

Forecasts

So, might I looking at the FTSE 100’s best buy here? I think it all depends on how I expect the dividend to go.

The update said: “Our dividend policy of delivering stable or growing dividends to our shareholders remains unchanged.”

If M&G can pull that off, then yes, I think this might be one of the best income stocks around.

Analysts seem to think it can, posting consistent dividend forecasts for the next few years. That’s to be treated with caution, but it’s good to see.

Time to buy?

I’ll keep that “backdrop of ongoing market volatility and uncertainty” in mind, for sure, as I think it could still cause more short-term pain for M&G shares.

But for long-term passive income, this is in my top five candidates for my next stock buy.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended M&g Plc and Prudential Plc. 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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