The ideal dividend stock offers both income and growth. My favourite FTSE 100 income play has given me bags of both. But how many of its shares would I need to hold to generate as much income as the State Pension pays right now?
The company in question is wealth manager M&G (LSE: MNG) which I added to my SIPP in 2023. At the time, it had a stunning trailing yield of 10%. Of course, ultra-high income stocks can be risky, as shareholder payouts may not be sustainable. But on closer inspection, I decided M&G was good for it. Although as ever with equities, there no guarantees.
M&G shares have a mighty yield
The M&G share price is up an impressive 45% in the last year. As a result, the trailing yield has retreated to 6.6%. So investors buying M&G today won’t get as much income as I did. But that’s still a pretty good return. With markets falling on events in Iran, I’m sensing a fresh buying opportunity and may add to my stake.
Last September’s half-year results confirmed M&G’s financial strength, with a solid Solvency II ratio of 230%. That’s up from 223% at the end of 2024. It’s also on track to hit its target of £2.7bn in operating capital generation between 2025 and 2027.
Every stock has risks. As an active manager, M&G has been squeezed by the popularity of passive funds. Stock market turbulence can hit assets under management and net flows, and it has to keep finding new sources of income to grow.
M&G has nonetheless increased dividends each year since demerging from Prudential in 2019. It’s now pursuing a “progressive” policy targeting modest increases of around 2% a year. Analysts forecast the dividend per share could rise to around 21.2p in 2026.
Doing my maths on income
Today, I hold 3,694 shares in M&G. That means I’m on course to generate £783 of income this year. This is obviously well short of the full new State Pension, currently £11,973. To reproduce that income purely from this stock, I need to up my stake to 56,476 shares. At today’s price of 304p, that would cost £171,687. Minus the £12k I already hold.
Clearly, I’m well short. While I’m 15 years away from retirement, my shares and reinvested dividends have to rise like a rocket to come anywhere near generating that kind of money. I’m still keen to buy more M&G shares, but maybe not that many. Obviously, I need to spread the money around for diversification purposes.
No investor should rely on one stock to fund their entire retirement. Personally, I spread my SIPP across a dozen FTSE 100 stocks with both income and growth potential. M&G is one piece of that mix. In time, I expect my SIPP generate a lot more than the state pension pays me in retirement. As markets fall, I’m keen to add to my pile of shares. M&G is high on my shopping list, but I can see some other terrific FTSE 100 income stocks to consider buying today as well.
