Among the shares of the blue-chip FTSE 100 index, very few offer a double-digit percentage dividend yield. But asset manager M&G (LSE: MNG) does. At the moment, the M&G dividend yield is a juicy 10.1%.
Not only that, but I think the dividend per share could grow over time, meaning the prospective yield is even higher than 10.1%.
Track record of dividend growth
Over recent years the company has grown its dividend per share annually.
Past performance is not necessarily a guide to what to expect in future though. The company has consistently said it aims to maintain or grow its dividend annually, but in practice no company’s dividend is ever guaranteed to last, let alone grow. Whether it does depends, among other factors, on a company being able to afford it.
Last year, the dividend per share grew 2% to 20.1p per share. That is modest growth, but it is still growth. The dividend for the full year cost M&G £478m. That was well covered by operating capital generation of £933m.
If the company can keep throwing off capital at that sort of level, as long as non-operating costs stay manageable, the M&G dividend looks supportable to me.
Concern about customer fund outflows
Still, whether that happens remains to be seen. One of the things that has concerned me about M&G’s recent business performance has been the trend for clients in its core business to take more out of its funds than they put into them. That is a risk to revenues and profits.
Last year, for example, there was a net outflow from M&G’s currently open funds of £1.9bn. The international institutional asset management business did fine on this score, seeing a net inflow of client funds. But its UK equivalent saw more cash go out the door than came in.
At £3.8bn for that line of business, the company pointed to an improvement over the previous year, when net outflows had hit £6.1bn. Still, that net outflow concerns me as it suggests that either customers are pulling money out of funds generally, or that they are switching from M&G funds to better-performing ones offered by competitors.
Neither would be good for M&G’s business, so I continue to keep a close eye on net flows into and out of M&G’s funds in trying to assess the health and trajectory of its business.
I’d happily buy!
Still, overall I think the business is in decent health. It has a proven model, large client base and strong brand that hopefully will help it keep bringing in new customers over time. That could help it resolve the problem of outflows from funds.
If an investor has spare cash to invest this April, I think they should comsider some M&G shares for their portfolios, with that juicy dividend in mind.
