One of the shares I own is asset manager M&G (LSE: MNG). Its recent capital growth record has been unremarkable, the shares standing within 1% of where they were a year ago. But I like the company’s dividend.
The M&G dividend yield is 8.2% at the moment – and yesterday the firm announced an increase to its interim payout. That yield certainly tempts me to add more M&G shares to my portfolio. But how sustainable is it?
Good news on the M&G dividend
The company has a policy of maintaining or increasing its dividend each year. Of course, dividends are never guaranteed, but I think it is positive that management at least aims to avoid a cut.
Yesterday, M&G announced its results for the first six months of the year. There was good news on the dividend front. Not only was the interim dividend maintained, it was actually raised to 6.2p per share. Last year it was 6.1p, so the raise is less than 2%. But I see it as a positive step.
That does not mean the full-year dividend will necessarily also be raised at the same rate. However, I am optimistic the annual payment this year will end up being bigger than it was last year. The company struck an upbeat note about its prospects, saying: ”We feel momentum is continuing to build in the business”.
So is this dividend sustainable? After all, a yield of over 8% seems high compared to the overall market and could signal investor doubts about whether it will continue.
M&G is not alone among its peers in having a high dividend yield at the moment. The yield at rival Abrdn, for example, is a smidgen higher at 8.5%, while Jupiter offers a whopping 14%. Unlike M&G, those two companies have both seen their share prices fall by at least 40% over the past year.
They both saw net outflows of client funds in the first half, but M&G actually saw a net inflow. I see that as a good sign. One risk to the M&G dividend in recent years has been the risk of lower profits due to clients withdrawing funds. So the net inflow in the past six months is reassuring.
As the yields in the sector suggest though, asset managers remain under a lot of pressure. The gloomy economic environment could hurt profits, for example if clients withdraw funds due to weak market performance.
Even after the net inflow of funds, M&G saw assets under management fall £21bn to £349bn compared to the same period last year. It also saw a 44% drop in its adjusted operating profit before tax.
So while the company is doing well in some regards, clearly it will still need to work hard in coming years to handle the challenge of difficult markets. If it can do that successfully, I think the M&G dividend can last. That is why I continue to hold the shares in my portfolio.
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C Ruane has positions in Jupiter Fund Management, M&G PLC, and abrdn. The Motley Fool UK has recommended Jupiter Fund Management. 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.