The FTSE 100 is crammed full of stocks that can give investors a brilliant second income stream without working for it.
That’s the magic of dividends. No sweat, no shifts, no hard graft – just pick the Stocks and Shares ISA platform, pick the stock, and let the business do the heavy lifting.
Ideally, I like to leave my income shares alone. I don’t check their share prices daily. Compound income and growth can work wonders, but need time.
Wealth manager M&G (LSE: MNG) is one of my favourite passive income holdings. It’s offering a whopping 9.5% dividend yield. That’s more than double today’s best buy cash savings rates.
The difference is that my capital is on the line, and that’s something investors have to be comfortable with.
Cash rolling in
Like just about every other stock, M&G was hit by the recent jitters around Donald Trump’s trade tariffs.
With £346bn of assets under management, market shocks like this are never welcome. They can also put off new clients from investing, denting future inflows.
As tensions ease, M&G shares are red hot, up 15% in a month. They’ve now recovered from the recent dip. Over 12 months, the gain is a more modest 6%, with that juicy dividend on top.
Ignore the noise, and the business is pushing on. On 19 March, M&G posted a loss before tax of £347m, but that was mostly down to fair value adjustments.
Adjusted operating profit, which most investors focus on, rose 5% to £837m. That beat expectations and was driven by a 19% jump in asset management profits.
Slow growth hope
Operating capital generation came in at £933m, which is important as that helps the dividend. The total payout was increased, but only by 2% to 20.1p. My next dividend should land in my trading account this Friday (9 May). Always a happy day and obviously, I’ll automatically reinvest it to buy more M&G shares.
Of course, there are risks. M&G hasn’t exactly smashed it since demerging from Prudential in October 2019. As an active fund manager, it faces an ongoing battle against cheap and passive exchange traded funds (ETFs).
The group is tiptoeing back into the bulk annuity market, but it’s a relatively small player. There’s also a fresh cost-saving drive under way, with a new £230m target for 2025.
There’s pressure to keep delivering, as the yield is the main reason many investors are here. Any dividend cut would be a blow, both to income and the share price. Given M&G’s capital strength and cash generation, I’m hopeful that won’t happen.
Loving those dividends
The 11 analysts serving up one-year share price forecasts have produced a median target of 232p. If correct, that’s a modest increase of just under 10% from today. Combined with that yield, this would give a total return of almost 20% if true. Naturally, forecasts can’t be relied on.
Where the price goes over just one year is neither here nor there to me. I plan to hold for a lot longer than that.
The M&G share price may be on fire today, but over the long run it’s more of a slow burner. Which is fine by me.
