The insurance and asset management sector’s filled with popular income stocks like Legal & General. Yet while it often doesn’t get as much attention, M&G‘s (LSE:MNG) another dividend-paying enterprise in this category currently offering a chunky 6.81% yield.
That means with just £500, investors can instantly start earning a small but meaningful £34.05 passive income – roughly double what the average UK savings account offers today.
So is this too good to be true? Or are stock-pickers looking at a rare buying opportunity to lock in an impressive yield?
Why’s the yield so high?
A big reason why M&G has such a high yield is tied to its complex structure as a business. After being spun out of Prudential in 2019, the company formed two core operating divisions:
- Asset Management – creates and manages a range of investment funds covering stocks, bonds, real estate, and infrastructure.
- Life Insurance – manages a large number of life insurance policies and annuities.
Combined, these segments generate a lot of recurring revenue through management fees and insurance premiums. And the cash generative nature of this business model is how leadership has been able to raise dividends every year since its IPO almost seven years ago.
But this is where things get complicated. Because M&G doesn’t sit comfortably within the asset management or life insurance sectors individually, the group has to follow some pretty complex accounting rules. And it’s resulted in some whacky numbers, with net income swinging in and out of the red.
Understandably, this makes it much harder to understand exactly what’s going on under the hood. And for that reason, M&G shares have always traded at a relatively cheap valuation with a juicy dividend yield.
So does M&G’s dividend hold up?
Looking at the earnings per share, the group’s payout ratio’s an alarming 166% as per its 2025 full-year results. That means the company appears to be paying out 66% more than what it’s generating in profits – an immediate red flag of unsustainability.
But as previously mentioned, earnings are deceptive when it comes to M&G. What really matters is operating capital generation, which reveals the amount of actual money flowing into the business. When comparing dividends against this cash flow, the payout ratio drops to 63%.
In other words, the dividends are indeed covered, making today’s high yield seemingly sustainable, with enough wiggle room for even more payout growth if cash generation doesn’t deteriorate.
So how likely is this to happen?
What to watch
On the asset management side of the business, M&G remains almost entirely market-dependent. Downturns in the stock or bond markets negatively impact the group’s assets under management, lowering fees, as well as accelerating client outflows.
On the life insurance side, shifting legislation and lower returns on management actions are starting to apply pressure. And evidence of lower life insurance income has already started to creep into its results.
Put simply, this income stock is far from risk-free, and the high yield is a reflection of this.
The strong dividend track record suggests that a lucrative passive income opportunity exists here. Personally, there are far fewer complex businesses offering similarly high yields that are more tempting. But for dividend investors looking for hybrid exposure to the insurance and asset management sectors, M&G may be worth a closer look.
