I love searching for dividend shares on the London stock market. The UK’s home to scores of market-leading companies, whose diverse revenues streams and strong balance sheets make them perfect for passive income.
But that’s not all. While the FTSE 100 has surged over the last year, many top dividend stocks can still be picked up at rock-bottom prices. M&G (LSE:MNG) is one such company that offers excellent value and income potential. In fact, it’s one of my favourite cheap dividend shares right now.
In fact, I’m hoping to add it to my portfolio when I next have cash to invest. Want to know why?
Dividend growth
M&G‘s share price has soared 50% over the past year. As a consequence, its dividend yield is below the near-double-digit reading it was at in January 2025.
Yet at 7%, the company’s forward yield still smashes the FTSE 100 average of 2.9%. Only Legal & General shares currently carry a higher reading (8.5%).
M&G has plenty in common with its financial services peer. Its operations are capital light, and — thanks to a fee-driven operating model — it enjoys terrific cash generation to support shareholder payouts. Since its separation from Prudential in 2019, it’s raised its dividend every year and offered a dividend yield no lower than 6.5%.
Rising yields
Can the company keep this great record going, though? I’m confident it can, even though tough economic conditions could impact profits (and by extension M&G’s share price).
Half-year financials showed its Solvency II capital ratio at 230%, the highest in the sector. Even if earnings take a whack, it has the balance sheet strength to continue delivering tasty dividends.
Latest financials also demonstrate M&G has what it takes to avoid a profits meltdown during challenging times. It enjoyed £1.8bn of net inflows across its Asset Management and Life units over the third quarter.
It said “despite a volatile macroeconomic environment, we are seeing growing momentum” and asset management inflows were £1.5bn. This pushed assets under management (AUMs) across the whole group to £365bn, up 3% over the course of the quarter.
City analysts are confident M&G can continue this momentum. They’re tipping annual earnings growth of 16% this year, and 9% in 2027.
And so dividends are tipped to keep rising steadily over the period, too, nudging the 7% yield for 2026 to 7.3% for next year.
A top dividend share
Over the long term, I’m confident of strong and sustained dividend growth. A ‘grey tidal wave’ of older people, combined with rising interest in financial planning, should drive demand for its savings, investment, and retirement products. M&G’s market-leading positions put it in great shape to capture this opportunity, though it’ll have to paddle hard to succeed given the level of competition across its product lines.
Looking at value, its price-to-earnings-to-growth (PEG) is 0.7, comfortably below the bargain benchmark of 1. Combined with that enormous dividend yield, I think it’s one of the best dividend shares to consider right now.
