I’ve just received a little treat, courtesy of a FTSE 100 income stock I hold inside my self-invested personal pension plan (SIPP). It came in the shape of a payment of £133.93. The cash injection wasn’t a surprise, I’d been expecting it. It was welcome, nonetheless.
The income stock is wealth manager M&G (LSE: MNG). It currently boasts one of the most generous yields on the entire FTSE 100, at 9.6% a year.
Little but often
So far, I have a relatively small stake. I bought 1,063 M&G shares on 27 July for £2,000, and another 1,023 shares on 8 September, also for £2,000. The share price has increased slightly in the interim, which is why my second purchase bought fewer shares.
My SIPP shows a third transaction. On 7 November, I purchased another 64 shares. The difference is that, this time, it didn’t cost me a penny. I didn’t have to do anything. Other than alert my online platform that I want to reinvest all my dividends straight back into my portfolio. It did the rest.
Reinvesting dividends is a brilliant way to build wealth for the future. It means I buy more stock, without doing anything. Those shares will have years and years to grow, and generate dividends of their own, thanks to the fantastic multiplication effect known as compounding.
Of course, £133.93 isn’t very much in the scheme of things. It’s only a tiny, tiny contribution to the million-pound portfolio I’d love to have by the time I retire. But here’s the thing. November’s payout was only an interim payment, equivalent to 6.5p per share.
The M&G board aims to make two of them a year. In 2022, it made a first interim payment of 6.2p, followed by another larger payment of 13.4p. Assuming all goes well, I should be on course for a second interim payment this year, and this should be more than twice as big as the first one. So I could be getting another £270, most likely around March next year. Plus more next year, of course, and the year after.
I invest in others
Also, this year’s 6.5p is 4.8% higher than last year’s 6.2p, and I would hope for similar growth for the second interim payment too. So I’m not just getting a terrific rate of income, I’m getting a rising income, too. Markets expect the M&G yield to climb to 9.96% in 2023, then rise again to 10.2% in 2024.
All this still leaves me well short of my million though. Now here’s how I plug the gap. As well as reinvesting my M&G dividends, I also plan to buy more of the stock, when I have a bit more cash to spare.
Also, I hold a heap of other FTSE 100 high-yielding dividend stocks, including Legal & General Group, Lloyds Banking Group, Glencore, Smurfit Kappa Group and Unilever. They’ve had mixed fortunes in this volatile year, but the dividends have continued to flow and I’ve reinvested every pound and penny of them.
Some people think investing is a get-rich-quick game. I say it’s the opposite. I aim to make my million slowly, one reinvested dividend at a time.
