FTSE 100 investment manager M&G (LSE: MNG) has been a standout performer in my passive income portfolio for years.
Passive income is money made with minimal effort by the investor, of course.
But the key question for investors now is will it continue to generate such stunning dividend income?
A five-year 9.58% dividend yield average
From 2020 to 2024, M&G generated average annual dividend yields of 9.2%, 9.2%, 10.4%, 8.9%, and 10.2%, respectively.
Last year, it paid a dividend of 20.1p, which gives a current dividend yield of 7.4%.
It is important to note that this was not because its dividend payment had dropped.
In fact, it rose in each of those previous five years.
Specifically, it paid 18.23p in 2020, 18.3p in 2021, 19.6p in 2022, 19.7p in 2023, and 20.1p last year.
The reason the dividend yield has declined is that it moves in the opposite direction to the share price. In M&G’s case, the stock is up 59% from its 7 April one-year traded low of £1.71.
This is excellent if I ever want to sell the share, of course, but less so from a regular dividend yield perspective.
Consensus analysts’ forecasts are that M&G’s dividend yield will rise in the coming years.
The forecasts are for a dividend of 21.2p in 2026 and 22p in 2027.
These would generate respective dividend yields of 7.8% and 8.1%, based on the current share price.
How much passive income can be made?
That said, at the current 7.4% rate, another £20,000 investment would make me £21,824 in dividends after 10 years. This also reflects my investing the dividends back into the stock (‘dividend compounding’).
On the same basis, this would rise to £162,896 after 30 years.
Including the initial £20,000 investment, the holding’s total value would be £182,896 by then.
And this would generate an annual passive income of £13,534 from dividends.
If the dividend rose to 8.1% as forecast, then after 10 years the dividends would be £24,836. After 30 years, it would increase to £205,330.
The holding’s total value would be £225,330, and it would deliver £18,252 in passive income a year.
My investment view
The key to my investing in any stock is how its earnings (or ‘profits’) growth prospects look. It is ultimately these that will drive any firm’s dividends higher over time.
A risk to M&G’s is any further surge in the cost of living that could prompt investors to withdraw funds.
However, in its Q3 trading update released on 5 November, M&G reported a 3% increase in assets under management — to £365bn.
Moreover, consensus analysts’ forecasts are that its earnings will grow by a stunning 35% a year to end-2027.
Given these projections and the forecast rise in dividend yield, I will buy more of the shares very soon.
However, I am also monitoring other stocks with high dividend yield potential.
