Investors looking to add a FTSE 100 dividend stock to this year’s ISA will find plenty of great passive income opportunities out there. Last month’s market correction has driven up yields almost across the board. That higher rate of dividend income can be taken tax free in a Stocks and Shares ISA. All the share price growth is free of tax too.
That makes it worth beating that deadline, which is just days away on Sunday 5 April. Yet many will be understandably nervous, with markets rattled by the conflict in Iran. What should investors do?
Income-friendly tax wrapper
It pays to keep a cool head today. Stock market turbulence is nothing new. We’ve seen several sharp sell-offs in recent years, due to Covid, the Ukraine conflict, and US trade tariffs. Each time markets quickly recovered.
The latest shock may be worse. We just don’t know. But over the long term, markets have always recovered to reward patient investors.
If concerned, one option is to drip-feed cash into shares over the weeks ahead, to smooth out the ups and downs. Investors can put money into their Stocks and Shares ISA before the deadline to secure their allowance, and decide what to invest in later.
For those willing to take a bit more risk in search of income, one FTSE 100 stock stands out to me right now: wealth manager M&G (LSE: MNG).
I wouldn’t call it a defensive play though. The shares have fallen around 15% over the last month. That’s almost twice the drop seen by the FTSE 100.
But M&G was performing strongly before this latest wobble. Even after the recent dip, the shares are still up roughly 30% over one year and 50% over three. That’s a strong return, with some juicy dividends lifting the total return towards 75%.
M&G shares also grow
The trailing dividend yield currently sits at a juicy 7.5%. That said, high yields always come with a health warning. Sometimes they signal trouble. In M&G’s case, the business looks broadly stable, with improving inflows and a strong capital position. But it’s not risk-free.
Profits have been a little underwhelming, and the group needs to keep attracting new customers and growing assets under management to maintain momentum. A prolonged market downturn could hit sentiment and slow customer inflows, which could put pressure on future shareholder payouts.
Valuation is another consideration. The price-to-earnings ratio is around 22, which isn’t especially cheap, so it isn’t an obvious bargain across the board. Still, I think M&G is worth considering for long-term income investors. The dividend looks reasonably well supported, and the company has opportunities to expand, particularly in areas like retirement products. As part of a diversified portfolio, I think it has its place. I hold it myself.
There are plenty of other high-yielding FTSE 100 shares out there, some of which offer even better value. Today’s volatility is a good time to consider buying them. Don’t expect to catch the exact bottom, but balance the risks by feeding in money over both the ups and the downs. I can see plenty more high-yields shares worth chasing today.
