Is it finally time for me to buy this FTSE 100 dividend star?

I think most of my favourite FTSE 100 income stocks still look like they’re very good value today. This one’s near the top of my list.

| 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.

Do you ever look at a FTSE 100 stock and think it really should be your top dividend candidate? I often do, and in this case, I keep coming back to M&G (LSE: MNG) and its forecast dividend yield of a whopping 9.7%.

That would be enough to turn a single year’s Stocks and Shares ISA allowance into £50,000 in 10 years. That’s by dividends alone, investing them in new shares. And not adding a single new penny to the pot for the whole decade.

It also ignores any possible share price gains we might enjoy too. Saying that, since M&G demerged from Prudential in 2019, the price is down 6%. Maybe it wasn’t the best time to come to market, just before the Covid pandemic devastated the financial sector.

Should you invest £1,000 in BP 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 BP made the list?

See the 6 stocks

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

Protect from risk

It still reminds us that we can’t be sure of any stock’s progress, and we really need some diversification to protect our money from an individual company or sector crash.

I must also stress that dividends don’t come with a guarantee. Vodafone‘s a good example with an expected 9.9% this year. But we already know that the firm plans to halve it next year.

And that’s why holding a diversified portfolio can make a big safety difference to dividends too, not just share prices.

But let’s look closer at M&G.

What does it do?

M&G is a savings and investments manager. And that’s really why it suffered so much stock market crash pain in 2020, added to by the subsequent rises in inflation. It’s just not a business in great demand when folk have less cash to invest, and are scared of the whole thing anyway.

But a bad spell for a company’s share price can be a great opportunity for private investors to get in cheap. And on the valuation front, a forward price-to-earnings (P/E) ratio of only 7.5 makes the stock look cheap to me.

To balance that though, analysts do expect M&G’s earnings per share (EPS) to dip by 10% in 2025, before getting back to growth in 2026. Even then, in 2026, it would still be a bit below 2024 expectations.

It suggests the P/E could rise to 8.4 next year, before falling back to around 7.5 again.

Risky buy?

That degree of uncertainty in the forecast, which is a bit of a black art anyway, shows what I think could be the main risk. That’s volatility, in response to economic fears that are still with us.

Forecast earnings would only cover those dividends by a squeak too. That means I couldn’t rate it as one of the FTSE 100’s surest.

But the real reason I might buy M&G shares in the near future is a fairly simple one. That P/E’s only around half the Footsie’s long-term average. And I think it leaves a good bit of safety margin.

And a 9.7% dividend yield means a modest cut, should it be needed, could still leave plenty for profit.

Should you buy BP shares today?

Before you decide, please take a moment to review this first.

Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.

It’s called ‘5 Stocks for Trying to Build Wealth After 50’.

And it’s yours, free.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.

That’s why now could be an ideal time to secure this valuable investment research.

Mark’s ‘Foolish’ analysts have scoured the markets low and high.

This special report reveals 5 of his favourite long-term ‘Buys’.

Please, don’t make any big decisions before seeing them.

Claim your free copy now

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 no position in any of the shares mentioned. The Motley Fool UK has recommended M&g Plc, Prudential 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.

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

Investing Articles

Forecast: in 1 year, the Barclays share price could be…

Barclays’ share price has more than tripled in the last five years as higher interest rates push up margins. But…

Read more »

Investing Articles

This FTSE 100 heavyweight’s yield is forecast to rise to 8% by 2027 and it looks 60%+ undervalued to me too!

This FTSE financial gem looks very undervalued to me and its yield is projected to rise to well over my…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

An all-time low! Have 25% car tariffs wrecked the Aston Martin share price?

The Aston Martin share price is diving into uncharted territory after Trump levied 25% duties on all cars and auto…

Read more »

Investing Articles

Forecast: in 1 year, the Tesco share price could be…

Competitive fears are driving the Tesco share price down, but has the market overreacted? Here are the latest analyst forecasts…

Read more »

Investing Articles

As collapsing share prices send dividend yields soaring, which income shares look attractive?

With shares in energy companies falling, Stephen Wright thinks dividend investors should consider taking advantage of some unusually high yields.

Read more »

Investing Articles

Forecast: in 1 year, the Tesla share price could be…

Despite volatility plaguing the Tesla share price, analyst forecasts remain bullish for the long run. Here’s how high the stock…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Forecast: in 1 year, the Lloyds share price could be…

The Lloyds share price has surged more than 40% over the last 12 months, but can this momentum continue? Or…

Read more »

Investing Articles

Down 22%, this FTSE stock offers a 9.3% dividend yield for investors

This unloved renewable energy giant controls 6% of the UK’s wind power generation, offering one of the highest dividend yields…

Read more »