Investors seeking a second income from dividend-paying FTSE 100 shares sometimes have to sacrifice potential share price growth. Is that a trade-off worth making?
To find the answer, I looked at investment manager M&G (LSE:MNG), which offers one of the highest yields on the entire FTSE 100, at 9.13% on a trailing basis.
Since it was hived off from blue-chip insurer Prudential in October 2019, floating at 225.2p a share, its shares have gone nowhere.
In fact, they’ve fallen 2.4% to today’s 219.8p. Management and investors would have hoped for better, but they have some compensation, in the shape of dividends.
Underwhelming growth
A £10,000 investment in M&G on flotation day would have picked up 4,440 shares. Those shares would be worth £9,760 today, a paper loss of £240.
But across those five years, M&G has paid out a total of 111.7p per share in dividends. They would have totalled £4,959.
That’s almost half the initial investment recouped in shareholder payouts. Add that to the current value of the shares, and the stake would now be worth £14,719. Not bad going, considering the growth no-show.
This suggests income from dividends can still deliver the goods even when capital growth falls flat. Although of course, few companies offer dividends quite as high as this one.
Back on track
M&G, like most firms in the financial sector, has had a rough ride. The pandemic battered asset values, inflation and interest rates have shaken markets, and lately we’ve had Donald Trump’s tariff volatility.
As an active fund manager, M&G has also faced brutal competition from the rise of low-cost passive exchange traded funds.
But the business isn’t standing still. It’s making a renewed push into bulk annuities management and private assets — two areas with potential to drive future growth.
On 19 March, full-year results showed M&G swung to a pre-tax loss of £347m in 2024, driven by technical fair value adjustments.
However, on an adjusted basis, operating profit rose 5% to £837m, beating consensus estimates due to strong progress in asset management.
Crucially, operating capital generation came in at £933m, which should support the dividend. M&G expects to generate £2.7bn in capital over the next three years and is aiming for 5% growth in annual profits through to 2027.
While double-digit yields can be precarious, this one seems to be safe for now, but as ever, there are no guarantees.
Modest outlook
Shareholder payouts won’t rise rapidly. M&G’s final dividend was lifted to 13.5p, taking the total for 2024 to 20.1p. That’s a rise of just 2% on 2023.
That modest rate of dividend growth might disappoint some, but that yield won’t. Especially when it’s been achieved in such a tricky environment.
M&G shares have risen 6% over the last year and 13% in the last month alone, helped by rising market sentiment and Trump’s tariff climbdown.
While volatility is likely to remain, the dividend may look even more tempting as interest rates fall and drag down the income paid by cash and bonds. This could draw in new investors.
I hold the stock and think it is worth considering buying today. M&G shows that even when growth is elusive, high-yield passive income stocks can still pay their way.
