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.
