M&G (LSE: MNG) shares haven’t exactly set the world on fire since the fund manager peeled off from Prudential in October 2019, but that’s hardly surprising. Since then we’ve had Covid lockdowns, post-pandemic supply chain shortages, war in Ukraine, the energy shock and now the Israel-Hamas war. Talk about a baptism of fire.
Volatile stock markets hit fund managers in two ways. First, assets under management (AuM) fall along with the market. Second, inflows fall as investors grow wary.
That’s exactly what has happened with M&G. Assets under management and administration (AuMA) fell to £332.8bn in the first half of the 2023 financial year, down 4.6% from £348.9bn in 2022. Net client flows dropped from £1.2bn to £700m.
Doing quite nicely
Yet this is better than it looks as net flows remained positive for the third consecutive year, while the group’s PruFund funds brand is expanding nicely.
Despite those challenges, M&G was still able to increase adjusted operating profit by more than 30% to £390m, while operating capital generation jumped 16.6% to £505m.
M&G also boasts a strong balance sheet with a “strong” Solvency II coverage ratio of 199%, the same as last year. I’m relaying all these figures because the board needs to keep making steady profits to fund its dividend, which is the really attractive thing about this stock.
It now yields 10.02%, one of the highest dividends on the FTSE 100. It’s the main reason I bought it, after deciding that the company was generating enough capital to maintain shareholder payouts despite today’s uncertainties.
Markets also seem positive with a consensus forecast yield of 10.5% in 2023, rising to 10.7% in 2024. M&G’s management is still progressive, hiking the interim ordinary dividend by 5%. I’ll get my share of that on 3 November. I’ve built a relatively sizeable holding in M&G and I’m looking forward to the money hitting my account (when it will be immediately reinvested).
More to come
Since listing in 2019, M&G will have returned over £2.5bn to shareholders. While dividends are never guaranteed, that bodes well for the future. That’s the exciting thing about buying stocks when they’re down. Not only is the share price cheaper, but the yield is higher too.
M&G’s shares have done better than other asset managers lately. They’re up 6.16% over 12 months, whereas Aviva is down 5.07%, Schroders is down 8.85%, Legal & General Group is down 12.12%. While the stocks aren’t directly comparative, they offer enough crossover to make the comparisons meaningful.
It suggests to me that M&G has more solidity than most in this sector, and investors are hungry to buy. Management still has some work to do, to add some zip to the company. It is looking to generate £200m of cost savings and reduce its leverage ratio below 30%. Markets remain volatile and if they do crash this stock will go down with along with everything else.
If I’d invested £10,000 in M&G a year ago I’d have got £616 in capital growth and £1,002 in dividends. My stake would now be worth £11,618, which is pretty good given the volatility out there. I’d be happy, and I’d be hoping for a lot more to come.
