£6k bought me 3,289 oversold shares with a stunning dividend yield of 10%

Harvey Jones is getting a handsome dividend yield from the FTSE 100 high income stock, but he wonders if the payouts are sustainable.

| 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.

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.

I can’t believe I can buy a FTSE 100 blue-chip paying a brilliant dividend yield of 9.98%. Yet I can and I have.

I invested £2,000 in wealth manager M&G (LSE: MNG) in July, September and November last year. My £6k stake bought me 3,028 shares and the dividend income has already started rolling in.

Should you invest £1,000 in Diageo right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Diageo made the list?

See the 6 stocks

I got my first payout of £133 in November and a second worth a thumping £405 in May, and reinvested both to buy another 261 shares. I can expect more of the same, with M&G shares forecast to yield 9.98% in 2024 and a staggering 10.3% in 2025.

FTSE 100 income hero

At this rate, I’ll double my money in just over seven years. If the M&G share price grows, I’ll get that on top. So what’s the catch?

The shares aren’t growing. They’ve barely shifted since M&G was hived off from Prudential in June 2019. They opened at 202.65p. Today, they’re at 204p. Over the last 12 months, they’ve climbed just 1.25%.

Created with Highcharts 11.4.3M&g Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Personally, I believe things will pick up. When interest rates are finally cut, ultra-high-yielders like this one will look even more attractive relative to cash and bonds. Shares should recover across the board, driving up M&G’s net customer inflows and assets under management. That should lift the share price.

With rate cuts delayed again, the stock has fallen 13.23% in three months. I see this as a buying opportunity. The shares trade at a modest 9.35 times forward earnings. The big question is: will that dividend hold? Double-digit yields are notoriously unreliable. So what does M&G’s short, five-year track record suggest? Here’s what the chart says.


Chart by TradingView

The board has steadily increased dividends, just not by much. The last hike was a barely-there 0.1p to 19.7p per share.

I want to buy more

The share price fell as a result, even though the group had just posted a 28% increase in full-year 2023 profits. My guess is that management looked at that sky-high yield and thought, that’ll do for now. I don’t think we can expect better until the share price kicks on.

In many respects, that’s fine. It’s a pretty juicy yield. The board also affirmed its “policy of stable or increasing dividends”. Operating capital generation jumped 21% to £797m. Group CEO Andrea Rossi expects it to hit its three-year target of £2.5bn by the end of this year.

The group has also re-entered the booming bulk purchase annuity market and anticipates sales of £1bn to £1.5bn a year, opening up a fresh line of income.

That yield isn’t 100% secure, but it looks more solid than it should do. Given the recent share price drop, I’m tempted to top up my stake. I enjoyed getting a £400 cash injection in my portfolio in May. I fancy a bigger one next time. The dividends are generous, but I have to accept they won’t grow as fast as I’d like.

Should you invest £1,000 in Diageo right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Diageo made the list?

See the 6 stocks

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. The Motley Fool UK has recommended M&g Plc and Prudential 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »