A 9% dividend yield could make this the best FTSE 100 stock for me to buy now

Is there a best stock to buy today, as we head towards the New Year? That’s a tough question, but this one is among my favourites.

| 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.

Investor looking at stock graph on a tablet with their finger hovering over the Buy button

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.

There are many UK stocks vying for the title of ‘best to buy now’. And, for me at least, some of the big dividends coming from financial stocks put them firmly in the lead.

The 9.1% on offer from investment manager M&G (LSE: MNG) looks like one of the best. And that’s even after the share price has picked up a bit. Not long ago, the forecast yield was in double digits.

Top financial stock

I’m big on financial stocks most of the time. And when so many look like they’re being hammered, the contrarian in me wants to stock up on them.

It would weigh my Stocks and Shares ISA a bit heavily in one direction, mind. And I do consider diversification to be a key element of long-term investing.

But then I remember something billionaire investor Warren Buffett said back in 2016: “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons“.

So maybe diversification can wait. And 2024 might be a year to fill my finance stock washtub.

Best of the best

Right now, I really like the look of Barclays, which I think is irrationally undervalued. I also quite fancy a top-up on my Lloyds Banking Group or Aviva holdings.

But I don’t hold any investment manager stocks at the moment, and that big M&G dividend might sway me.

It’s not all plain sailing though, after the firm delivered a loss in 2022. It looks like we should be on for a profit for 2023. But the implied price-to-earnings (P/E) ratio of 16.5 isn’t exactly a steal.

That should drop based on further forecasts. But there’s another reason for caution.

Assets

At the and if the first half, assets under management had fallen further. At 30 June, the total stood at £333bn. That’s down from £342bn six months previously. And from £349bn in June 2022.

That looks to be mostly down to asset value weakness though. And we saw a net client inflow of £0.7bn in the half.

Client flows have been all over the place since the 2020 stock market crash. And that’s a big cause of uncertainty right now.

Outlook

But, at the H1 point, the board did say the company was “on track to achieve our operating capital generation target of £2.5 billion by 2024, and we are making good progress on our 2025 financial targets“.

Could M&G really be the best FTSE 100 stock to buy right now? There’s still one big risk that the whole sector faces. We don’t know if we’ll hit an economic crisis in 2024.

Could the Bank of England’s efforts to bring down inflation go too far and tip us into a tough recession? Until we know the answer, I think financial stocks could remain weak.

Still, I’m not sure about the best FTSE 100 stock right now, but M&G might just be in my watchlist top three.

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 positions in Aviva Plc and Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc, Lloyds Banking Group Plc, and 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

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Dividend Shares

How much passive income could I generate with just £10 per day?

Ken Hall wants to create his £10,000 yearly passive income dream by investing just £10 every weekday day in Footsie…

Read more »

Investing Articles

Is the Rolls-Royce share price too high? Here’s what the experts say

The Rolls-Royce share price has surged over two years, representing one of the FTSE 100’s greatest success stories. But is…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

A top S&P 500 growth share and an ETF I’d buy this November!

I think this S&P 500 share and exchange-traded fund (ETF) could be brilliant additions to my ISA or SIPP right…

Read more »

US Stock

Here are the best-performing S&P 500 stocks after the US election result

Jon Smith notes some of the largest gainers from the S&P 500 yesterday and explains how the election result has…

Read more »

Growth Shares

2 UK stocks knocking on the door of promotion to the FTSE 100

Jon Smith points out a couple of UK stocks that he feels could be ready for the big league based…

Read more »

Investing Articles

Rolls-Royce shares just fell 7%. Is it time to buy?

This investor in Rolls-Royce shares takes a look at the FTSE 100 engine maker's trading update to see what caused…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

What’s going on with the Auto Trader share price?

Paul Summers takes a closer look at why the Auto Trader share price has tumbled despite the company posting higher…

Read more »

Investing Articles

Legal & General shares look set to give me a mind-blowing 10.22% yield in 2026!

Harvey Jones is getting a brilliant second income from his Legal & General shares and expects even more to come.…

Read more »