If passive income is the goal, the FTSE 100 can be a great place to look for opportunities. In this index, there are a lot of stocks that offer dividend yields of 6% or higher.
Here, I’m going to zoom in on one of my favourite passive income plays in the Footsie. This stock isn’t as popular as some other names such as BP and Legal & General, but it’s certainly rewarding investors with cash flow.
This Footsie stock is a cash cow
The stock in focus today is M&G (LSE: MNG). It’s a savings and investment business that has been around for over 170 years and currently manages money for around 4.5m retail clients and more than 900 institutional clients.
This company has rewarded investors with dividends every year since 2020 (shortly after it was split off from Prudential). And the payouts have been very generous.
This year, it paid investors 13.5p per share in May. It then paid investors another 6.7p per share in October, taking the total for the calendar year to 20.2p per share.
That means that someone who owns £10,000 worth of shares today (3,676 shares at today’s share price) received about £743 in dividends. That’s a great result – it translates to a yield of 7.4%.
Had the investor bought £10,000 worth of shares a year ago, they would have done even better. Back then, they would have got 5,154 shares for £10k.
Multiply 5,154 by 0.202 and we get £1,041. That equates to a yield of more than 10%.
Worth a look today?
Is the stock worth considering for an income portfolio today? I think so.
A recent trading update showed that the company has solid momentum at the moment. In Q3, it saw net inflows from external clients of £1.5bn, bringing the year-to-date total to £4.1bn.
“After a strong first half, we have maintained positive momentum, continuing to deliver against our growth priorities,” wrote CEO Andrea Rossi in the update. “Despite a volatile macroeconomic environment, we are seeing growing momentum across M&G, as we continue to execute on our strategy and deliver strong long-term value to both clients and shareholders,” he added.
As for the valuation, it looks attractive. Currently, the stock trades on a forward-looking price-to-earnings (P/E) ratio of just 10.6 (below the market average).
Note that analysts at Berenberg recently slapped a 342p price target on the stock. That’s about 26% above the current share price suggesting that they see potential for share price gains as well as income.
Of course, this stock does have its risks. A meltdown in the financial markets is an obvious one – this could hit profits and the share price.
As for the dividends, they aren’t guaranteed. It’s worth noting here that dividend coverage (the ratio of earnings to dividends) is only 1.24, which isn’t that high.
All things considered though, I like the look of this stock. And so do a few of my colleagues.
