This FTSE 100 ultra-high-yield dividend share has taken quite a bruising in recent market turbulence, but to be fair, most stocks have.
Wealth manager M&G (LSE: MNG) is in the business of actively managing investment funds, which means it’s on the front line of stock market volatility. When things get choppy, it feels the pain. And lately, it’s been feeling a lot of it.
The share price has slumped by 14.5% in just a month. Over the last year, it’s down 10%. The asset management sector has been out of fashion, and M&G hasn’t been spared.
Can M&G deliver growth as well as income?
Across the financials sector, we’ve seen a familiar pattern of low valuations, sky-high dividends and too little love from the market for quite some time.
I’m a huge admirer though, and hold Legal & General Group and Phoenix Group Holdings alongside M&G. So far, it’s been a mixed bag but there’s a silver lining.
Right now, M&G is offering a huge 10.78% trailing yield. That’s eye-catching and it might even get better.
I’ll get my next dividend from M&G on 9 May, and it will be a bumper one. I’ll reinvest it straight back into the stock, buying even more shares if the price is still low.
Last month, the board lifted its full-year dividend by a modest 2% from 19.7p to 20.1p. The board has been looking to increase future shareholder payouts by a similar percentage.
Given recent extreme volatility, this could prove in ambitious. Dividends are never guaranteed. These days, nothing is.
On 19 March, M&G reported a £347m loss before tax for 2024. That sounds alarming but was mostly down to unrealised fair value losses on annuity assets and interest rate hedges.
Strip that out and adjusted operating profit actually rose 5% to £837m, beating expectations. That came on the back of a strong 19% jump in asset management profits and some energetic cost cutting.
Operating capital generation, a key metric for paying dividends, dipped 6.3% to £933m but still beat forecasts.
This stock will remain bumpy
M&G expects to generate £2.7bn over the next three years, so the dividend still looks well supported. The board aims to grow adjusted profits by 5% or more per year through to 2027. But that was all reported in mid-March, which feels like a long time ago now!
Another risk is that as an active manager, M&G faces huge competition from low-cost passive exchange traded funds (ETFs), which continue to suck in investor cash. Net outflows totalled £1.9bn last year, although ssets under management edged up £2.4bn to £345.9bn.
The 12 analysts covering the stock see a median target price of just over 234p. That’s more than 25% higher than today’s 187p. Throw in the yield and it would lift the total return closer to 35%. Which would be lovely were it true but I find that difficult to picture today.
I bought the stock with an ultra-long-term view, and any investor considering adding it to their portfolio today should do likewise. The short term is bound to be bumpy, but I’d buy more if I wasn’t already heavily exposed to this sector.
