I’ve built up a decent position in FTSE 100 dividend stock M&G (LSE: MNG) and done well out of it so far. The shares are up 20% in the last year, while the trailing dividend yield of 7.8% is lifting my total one-year return towards the 30% mark.
The M&G share price has dipped today that doesn’t worry me. Shares go up and down all the time. In fact, it intrigues me, because I’m now tempted to top up my stake before the shares go ex-dividend on September 11, just over a week away. By doing that, I’ll bag its 2025 interim dividend, paid on 17 October.
The M&G share price fell 2.8% this morning as concerns over rising UK bond yields rattled the market. That was enough to drag down other high-yielders too, with Legal & General Group and Phoenix Group Holdings both off by around 3.8%. Lower share prices automatically lift yields, which makes M&G’s income stream look even more appealing right now.
M&G is a top dividend payer
I think M&G looks good for its dividend. It generated £933m of operating capital in 2024, beating expectations, and expects to deliver £2.7bn over the next three years. The solvency ratio remains strong at 223%.
Of course, dividends are never guaranteed. M&G’s net fund outflows totalled £1.9bn last year, as volatile markets unsettled customers. A further bout of selling across global equities would knock assets under management, which might scare off existing customers and deter new ones.
M&G looks set to increase future payouts by a modest 2% a year. With inflation currently 3.8%, this looks like a cut in real terms. The yield remains more than healthy, though.
Interim payment due soon
At today’s price of 257p, a £3,000 investment would buy around 1,167 shares. In October 2024, M&G paid an interim dividend of 6.6p per share. If the interim payment rises 2% this year, I’d expect this year’s interim to be around 6.73p. My £3k stake would give me £78.54. That’s enough to buy another 30 shares or so.
That doesn’t sound like a fortune, but it’s money in my account just a few weeks after buying. Plus, I already own 3,601 shares. They’ll pay me around £242 next month. So in total I’d be looking at £320 in October.
That’s just the first payment. I’ll get a bigger final dividend of around 13.77p next May, with luck. If I hold 4,708 shares by then, I’d get another £650 next May. That’s why I like income shares.
Long-term investing
One thing to remember is that when a share goes ex-dividend, the price usually drops to reflect the payout leaving the business. So it’s never a simple win. But I think M&G is worth considering for income seekers prepared to hold for years, letting those dividends roll up while treating any share price growth as a bonus.
There will be bumps along the way. Markets could yet struggle if inflation proves sticky or interest rates stay higher for longer.
For me, this is about playing the long game. Every dividend cheque adds to the compound returns effect. Buying on a dip secures even better value. I’ve got until 10 September to get this trade done.
