10.9%+ yield! Here’s my 2025-2027 M&G dividend forecast

Christopher Ruane explains why, although the M&G dividend yield already tops 10%, he’s hopeful it could move even higher over the long term.

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When it comes to passive income, few blue-chip dividend shares can currently match asset manager M&G (LSE: MNG). The FTSE 100 company has a dividend yield of 10.4%. I think the M&G dividend yield could go even higher from here and plan to hang onto my shares in the company.

Potential for dividend growth

The company’s current stated dividend strategy is to maintain or increase the annual payout per share. In recent years it has grown the dividend annually.

Such a strategy should only ever be seen as a goal. In practice, whether a dividend grows, shrinks, or stays the same ultimately depends not only on what the company’s board wants to do but also what its financial performance allows it to do.

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One thing I like about M&G is that it has proven itself capable of generating sizeable amounts of excess cash. It has also shown willingness to use some of that cash to fund a beefy dividend.

Can that continue? I think the firm’s strong brand, customer base in the millions spread across multiple markets, and deep expertise in its marketplace are all competitive advantages.

On top of that, I like the fact that the company operates in a market that is both huge and set to stay that way for the long term. That said, there could be bumps along the way if a poor economy leads clients to use their money for living expenses not investment.

Looking  forward, between now and 2027

So I think there is a good chance that we will see the M&G dividend grow this year and in the coming couple of years.

But after an increase of under 2% in the most recent interim dividend, as well as last year’s total annual payout, it seems that the board is aiming to deliver growth at limited extra financial cost.

On that basis, I expect several more years of dividend per share growth in the 1%—2% range. As a shareholder, I would treat higher growth as a bonus but am not pencilling it in to my considerations.

Even at 1.5% annual dividend per share growth for the next three years, that suggests a prospective dividend yield of 10.9% at the current M&G share price.

Potential storm clouds gathering

That low growth rate does not bother me much given how high the yield already is.

What is more of a concern, though, is that the growth rate is lower than in prior years, making me wonder whether management feels less confident than before about the business’s ability to sustain higher dividend growth rates.

In the first half of last year, the business generated operating capital of almost half a billion pounds. For a firm with a market capitalisation of £4.6bn, that strikes me as impressive.

Set against that, though, that period also saw net client outflows in the core (non-Heritage) business. If clients keep pulling out more money than they put in, M&G’s profitability could fall – and so could the dividend.

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

The share price has fallen 21% in five years, so clearly not all investors share my enthusiasm for this income share.

Personally, though, I have no plans to sell this blue-chip double digit yielder.

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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.

C Ruane has positions in M&g Plc. The Motley Fool UK has recommended M&g 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.

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