With the M&G dividend rising again, should I buy?

M&G raised its dividend again this week, so shareholder Christopher Ruane explains why he’d be happy to buy more of its shares.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Close-up of British bank notes

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One of the biggest dividend payers in my portfolio is M&G (LSE: MNG). This week brought news that the company will raise its interim payout, boosting the M&G dividend yield further.

With the yield already above 9% even before the announcement, this caught my eye. Although I own M&G shares already, could this be the moment to add some more and boost my passive income streams?

Positive news

The company has a dividend policy of trying to maintain or increase its annual shareholder payout.

However, dividends at any company are never guaranteed. So such dividend policies are statements of intent rather than necessarily a guide to what will actually end up happening.

It was therefore welcome news when the asset manager announced in its interim results yesterday (19 September) that it planned to boost its interim dividend per share from 6.2p to 6.5p, in line with policy.

Substantial increase

That amounts to a 4.8% increase, so I see that as substantial rather than merely a token gesture. It also affirmed that the dividend policy remains unchanged.

If the full-year dividend rises in line with the interim one (which may not happen) then we should be looking at a total M&G dividend for the year of around 20.5p per share. That would put the prospective dividend yield at around 10%.

Not only that, but if I bought today and the company raises its dividend further in coming years, the yield on my shares could keep rising.

Dividend support

But a dividend on its own tells us little if anything about the underlying health of a business. As an investor, one question I ask about income shares is how sustainable is the dividend?.

In the first half, adjusted operating profit before tax was up 31% from the same period last year, to £390m.

Assets under management fell slightly, but that was largely down to price movements, as there was a net inflow of client funds (excluding the company’s Heritage division).

The company struck a positive note about its medium-term outlook and said it is making good progress on hitting its 2025 financial targets. They could help fund more M&G dividend increases in future.

Possible risks

However, although things look fairly promising, there are still risks here. On one hand, demand for financial services is high, and M&G has a well-known brand plus a large customer base. Set against that though, a worsening economy could lead customers to withdraw funds.

That could result in lower revenues and profits for the firm. Although the inflow of funds in the first half was positive, it was still smaller than at the same point last year.

Double-digit yield

All things considered, I continue to see strengths in the M&G business that make me happy to keep my shareholding. The latest dividend increase is one more positive thing about holding the shares.

In fact, if I had spare cash to invest today, I would be happy to add some more of the FTSE 100 shares to my ISA.

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.

C Ruane has positions in M&g Plc. The Motley Fool UK has recommended M&g 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.

More on Investing Articles

Investing Articles

Could this be one of the FTSE 100’s best cheap dividend shares?

Looking for the best dividend growth shares to buy? Our writer Royston Wild thinks this FTSE 100 housebuilder might well…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Is this FTSE 100 passive income superstar also its best bargain right now?

This FTSE 100 gem still looks to me like one of the best bargains in the index. It appears very…

Read more »

Investing Articles

If I’d put £10,000 into Meta stock at the start of 2024, here’s what I’d have now

Our writer looks at the year-to-date performance of Meta stock and considers whether he'd consider buying this magnificent tech share.

Read more »

Hand arranging wood block stacking as step stair on paper pink background
Investing Articles

Investing £5 a day in this dividend giant can make me a £14,067 annual second income!

This FTSE 100 high-yield star can make me a major second income, supported by a strong business outlook and an…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Taylor Wimpey shares yield a fabulous 6.41%, but is the dividend safe?

Harvey Jones has enjoyed plenty of growth and income after buying Taylor Wimpey shares last year. But is today's high…

Read more »

Yellow number one sitting on blue background
Investing Articles

1 FTSE lithium stock I think could be ready to rocket

Jon Smith explains why the lithium price could be due a rally, and why shares of one related FTSE stock…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
US Stock

This growth stock that Warren Buffett owns just hit 52-week lows. Should I buy?

Jon Smith flags up a high-profile US stock that the great Warren Buffett bought back in 2020 but which has…

Read more »

White female supervisor working at an oil rig
Investing Articles

Could the UK general election be bad news for this FTSE 250 energy producer?

The country is due to vote in the general election on 4 July. Our writer looks at the possible implications…

Read more »