Is this a once-in-a-decade opportunity to target a second income?

Looking to make a large second income from UK dividend shares? Now might be the opportunity you’ve been waiting for, says Royston Wild.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Close-up of British bank notes

Image source: Getty Images

Stock market volatility is boosting investors’ chances of building a huge second income. As share prices sink, dividend yields are heading in the other direction. So for every pound invested, individuals can get more back in dividends.

Is this a once-in-a-decade chance for income investors? In a word, no. As economic and political conditions become less certain, stock market corrections and crashes are becoming more frequent.

But this doesn’t mean investors shouldn’t strike when volatility comes along. Let me explain, as well as reveal one of the FTSE 100‘s hottest dividend shares right now: M&G (LSE:MNG).

High-yield FTSE hero

At 274.8p, M&G’s share price has slumped 8% in value. This makes it the fifth-worst-performing share on the FTSE.

Has the market overreacted by sending its shares sharply lower? Perhaps not — after all, as a savings and investment products provider, it stands to lose if inflation soars and interest rates are hiked. This is a very real possibility if the Middle East conflict continues, threatening consumer spending on discretionary financial services.

But is this likely to damage the dividends paid on M&G shares? I’m highly doubtful. After all, the company continued to raise dividends even during the height of the Covid-19 pandemic. And as a keen income investor, this is incredibly attractive to me. Annual payouts have indeed risen every year since M&G joined the London Stock Exchange in 2019.

M&G has its robust cash generation and deep capital reserves to thank for this. And today its balance sheet is as cash-rich as it’s ever been. As of December, its Solvency II ratio was a sector-leading 242%.

This is almost two-and-a-half times the regulatory minimum. It’s also up from 223% just 12 months earlier.

A 7.7% dividend yield

Just as a rising tide lifts all boats, recent stock market volatility has pushed dividend yields higher across the FTSE 100. What strikes me about M&G shares, though, is the size of the dividend yield now that its share price has fallen.

At 7.7%, it’s yield is the third-highest on the Footsie for 2026. Only Legal & General and Standard Life shares beat it on this front, but as I say, M&G has stronger financial foundations, making it potentially a more secure dividend pick.

M&G is a high-quality business with excellent growth potential as financial services demand rises. It has also proved itself adept in less-favourable market conditions — it registered £7.8bn of net inflows last year as both its Asset Management and Life divisions outperformed. That was a £10bn year-on-year improvement.

I don’t think the firm’s resilience or its long-term growth prospects are reflected in its rock-bottom price-to-earnings (P/E) ratio. This is just 9.9 times on a forward basis, and — combined with that dividend yield — makes M&G shares an excellent value stock to consider. Buying quality shares like this when they fall could seriously boost one’s second income.

Royston Wild has positions in Legal & General Group Plc. The Motley Fool UK has recommended M&g Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Night Takeoff Of The American Space Shuttle
Growth Shares

How UK investors can get access to the $2trn SpaceX stock IPO TODAY

Investors in the UK can get exposure to space powerhouse SpaceX today via several investment trusts that trade on the…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Down 23% from its highs, I’ve just bagged myself a FTSE 100 bargain!

Stephen Wright has seized the opportunity to buy shares in a FTSE 100 company with outstanding growth prospects at an…

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

How to turn an empty ISA into £100 a month in passive income

Stephen Wright outlines how real estate investment trusts can help UK investors aim for £100 a month in passive income…

Read more »

Man riding the bus alone
Investing Articles

Down 23%! Should I buy Meta Platforms for my ISA or SIPP?

Meta stock looks undervalued after sliding steadily lower since last summer. But should I buy the social media giant for…

Read more »

A rear view of a female in a bright yellow coat walking along the historic street known as The Shambles in York, UK which is a popular tourist destination in this Yorkshire city.
Investing Articles

£5,000 invested in Greggs shares 2 years ago is now worth…

Anyone who bought Greggs' shares two years ago will now be sitting on heavy losses. Is there potential for a…

Read more »

Investing Articles

10 days to the next stock market crash?

What happens to the stock market when the current ceasefire in the Middle East expires? And what should investors do…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

How to try and double the State Pension with just £30 a week

By saving money each week and investing regularly, even someone without a lot of cash to spare can aim to…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

2 badly beaten-down small caps to consider for a £20,000 Stocks and Shares ISA

Ben McPoland highlights a pair of UK small caps that have sold off heavily, making them worth considering for a…

Read more »