The M&G share price looks far too low to me!

The M&G share price has dived by nearly 16% since peaking on 21 March. But with a near-10% dividend yield, I see these shares as deeply undervalued.

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Before I start discussing the M&G (LSE: MNG) share price, I’ll begin with a quick recap of recent stock market moves.

At present, the UK’s FTSE 100 index hovers just 0.3% below its 52-week high — and a similar level under its all-time intra-day high of 8,047.06 points, reached on 16 February 2023. Meanwhile, the US S&P 500 index stands 5.4% below its record high of 5,264.85 points, hit on 28 March.

M&G shares slip

As one of the UK’s leading asset managers, M&G’s success is closely tied to the prices of various financial assets, notably stocks and bonds.

Thus, with UK and US share prices close to record highs, this should be good news for this established firm, founded in 1931. However, M&G’s share price has been on the slide lately, falling back from highs seen just last month.

As I write, M&G stock trades at 203p, valuing this FTSE 100 financial firm at £4.8bn. Just over a month ago, the shares hit a one-year high of 241.1p on 21 March. Hence, they have slid 15.8% from this recent peak.

Here’s how this Footsie share has performed over six different timescales:

Five days+1.8%
One month-14.9%
Six months+4.1%
YTD 2024-8.7%
One year+0.4%
Since flotation -7.7%
*These figures exclude dividends.

Over the past year, M&G shares have barely budged, while they have lost nearly 8% of their value since floating at 220p each on the London stock market in October 2019.

Dividends matter

For the record, my wife and I own M&G stock as part of our balanced, diversified family portfolio. We paid 199.6p a share for our holding in August 2023. To date, we have made a tiny paper profit of 1.7% to date.

However, the above returns all exclude cash dividends, which are mighty generous from M&G and several of its asset-management peers. Right now, this stock offers a market-busting cash yield of 9.7% — way ahead of the 4% on offer from the wider FTSE 100.

Also, M&G shares will pay a cash dividend of 13.2p a share on 9 May, after the stock went ex-dividend on 28 March. This payout accounts for much of the fall in the share price since its peak a month ago.

For me, this UK stock looks undervalued today, thanks to its near-10% cash yield. However, as I said earlier, M&G’s future is tied to financial asset prices. If share and bond prices crash hard — as they did in 2022 — then the group’s revenues, earnings, and cash flow could take a big hit.

Despite this, as long-term investors, my wife and I are on board for the long run — regardless of short-term volatility in the M&G share price!

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.

Cliff D’Arcy has an economic interest in M&G shares. The Motley Fool UK has recommended M&G. 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.

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