£6k bought me 3,093 shares in this overlooked FTSE passive income stock yielding 9.1% a year

This FTSE 100 dividend stock pays one of the most generous levels of passive income on the index, yet often seems to fly under the radar.

| More on:
Young black man looking at phone while on the London Overground

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.

A heap of FTSE 100 dividend stocks offer generous levels of passive income right now, but a select bunch really stand out.

Incredibly, British American Tobacco, Vodafone Group and Phoenix Group Holdings all yield more than 10% a year. Yet they’re not my favourite income stocks. Instead, I’ve made repeated swoops on wealth manager M&G (LSE: MNG), a stock that I believe doesn’t always get the attention it deserves.

M&G doesn’t offer a double-digit yield, unlike the other three, but it’s not far off. I think the underlying investment case is a bit more solid, which means I could get some capital growth along with my income. So far, I’ve done quite well.

My favourite FTSE 100 dividend stock

I invested £2,000 in M&G shares on three occasions last year. On 12 July, my £2k bought me 1,063 shares at 187.17p each.

My next swoop, on 8 September, bought me another 1,023 shares at the slightly higher price of 194.07p. As M&G continued to climb, my third and final £2k bought me notably fewer shares, 942 in at for 210.7p each on 30 November.

I now own 3,093 shares in total, including the 65 I bought with my first dividend of £133.93, which I reinvested on 7 November.

While it’s far too early to judge the success or failure of this stock purchase – that will take five or 10 years at least – the early signs are positive. My £6k is now worth £7,008, a rise of 16.8%. I’ve been lucky with my timing, though. M&G is up a modest 3.33% over 12 months. 

As ever with investing, there’s no guarantee of success. I can research a stock as much as I like, but buying one is always a bit of a gamble.

I’m hoping for a rising yield

In full-year 2023, M&G paid a dividend per share of 19.9p. Let’s say that climbs 5% to 20.89p in 2024. While only a modest uplift, that would still give me income of £646 over the next 12 months. It’s in line with the forecast yield of 9.1% for 2024. That’s much more than I’d get from a savings account.

Dividends aren’t guaranteed. If a company doesn’t generate the required free cash, they will fall. The bigger the dividend, the greater the potential disappointment. I’ll be looking at its next set of full-year results very closely on 21 March.

As a wealth manager, M&G should do better when stock markets are rising, as this should boost customer inflows and total net assets under management. That partly explains the recovery of the last year. However, with US shares looking expensive at today’s all-time highs, there’s a danger of a sell-off. If we get one, M&G won’t escape unscathed.

Either way, my approach won’t change. I’ll reinvest every dividend I receive to build my position in M&G, with the aim of drawing it as passive income when I retire. I’d love to buy more M&G shares, but don’t have the cash right now. So I’ll make do with what I’ve got.

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.

Harvey Jones has positions in M&g Plc and Phoenix Group Plc. The Motley Fool UK has recommended British American Tobacco P.l.c., M&g Plc, and Vodafone Group Public. 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

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Could the FTSE 100 be set to soar in 2024?

The FTSE 100 keeps threatening to go off on a growth spree. And weak sentiment keeps holding it back. But…

Read more »

Investing Articles

Is this FTSE 100 stalwart the perfect buy for my Stocks and Shares ISA?

As Shell considers leaving London for a New York listing. Stephen Wright wonders whether there’s an undervalued opportunity for his…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

3 things I’d do now to start buying shares

Christopher Ruane explains three steps he'd take to start buying shares for the very first time, if he'd never invested…

Read more »

Investing Articles

Investing £300 a month in FTSE shares could bag me £1,046 monthly passive income

Sumayya Mansoor explains how she’s looking to create an additional income stream through dividend-paying FTSE stocks to build wealth.

Read more »

Investing Articles

£10K to invest? Here’s how I’d turn that into £4,404 annual passive income

This Fool explains how using a £10K lump sum can turn into a passive income stream worth thousands for her…

Read more »

Investing Articles

1 magnificent FTSE 100 stock investors should consider buying

This Fool explains why this FTSE 100 stock is one for investors to seriously consider with its amazing brand power…

Read more »

Rainbow foil balloon of the number two on pink background
Investing For Beginners

2 under-the-radar FTSE 100 stocks under £2

Jon Smith identifies two FTSE 100 stocks that he believes are getting a lack of attention from some investors but…

Read more »

Investing Articles

£8,000 in savings? I’d use it as a start to aim for £30k a year in passive income

Here's how regular investing in the UK stock market, over the long term, could help us build up some nice…

Read more »