15,100 shares in this FTSE 250 stock could unlock £2,000 a year in passive income
The FTSE 250 is home to some massive dividend yields right now. In fact, I count 14 separate stocks sporting yields above that of Legal & General (8.3%), which is often the Footsie bellwether for eye-popping passive income.
Naturally, not all of these shares will deliver. Dividends are never guaranteed, and the profits of some mid-cap companies can be erratic. Not all that glitters is gold, as they say.
However, I think Man Group (LSE: EMG) stock could be worth considering as a decent passive income generator in future. It’s fallen 26% year to date, putting the yield at 7.8%. This easily places it among the top yielders in the FTSE 250.
Listed hedge fund
Man Group is an asset management firm that runs various funds for both institutional and private investors. It’s heavily tilted towards quantitative and algorithmic trading, so many of its researchers come from physics and computer science backgrounds rather than traditional finance.
The group makes money in two ways: a steady stream of management fees based on assets under management (AUM), and performance fees earned when its funds beat set targets.
The latter can be more volatile though, as we saw in H1. Management fees held steady thanks to record AUM, but performance fees plunged 64% to $67m, cutting overall profit by 43%.
The problem was that several big trend-following funds struggled, particularly around April when markets went bananas after President Trump’s reciprocal tariffs bombshell. CEO Robyn Grew called it “one of the most challenging periods for trend-following strategies in 25 years”.
Despite this, the firm reported a record AUM of $193.3bn at the end of June, with net inflows of $17.6bn during the first half, 11.5% ahead of the industry.
It reported good growth in its credit platform, which ended with $42.7bn in assets. Credit is less reliant on market trends, so this part of the business can provide more stable fee income.
Complexity
Man runs a wide mix of strategies across multiple asset classes and regions. While this diversification can reduce reliance on any single strategy, it also adds complexity. Performance drivers can be harder for investors to fully understand compared to run-of-the-mill funds.
Moreover, AUM can dip if an important client pulls money out. In H1, one customer invested $13bn in the hedge fund’s systematic strategy (called Numeric). But this can work the other way, especially in choppy markets.
Passive income potential
Looking ahead though, Grew struck a confident tone, saying: “We enter the second half of the year with strong momentum.”
Importantly, the interim dividend was held steady, which was encouraging. Man Group has a solid track record of paying reliable dividends.
However, based on forecasts, this year’s dividend is covered just 1.1 times by earnings. That’s a thin cushion. But the good news is that next year’s cover rises above 1.5 times, assuming the payout is held steady and earnings expectations are matched.
This gives a forward-looking yield of 8.3%. In practical terms, it means an investor could aim to generate £2,000 in annual passive income from buying around 15,100 shares. At today’s price of 158p, those would cost roughly £24,000.
Finally, the stock is cheap at just 8.9 times forward earnings. So there might also be some decent share price appreciation if performance picks up moving forward.
The post 15,100 shares in this FTSE 250 stock could unlock £2,000 a year in passive income appeared first on The Motley Fool UK.
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Ben McPoland has positions in Legal & General Group Plc. The Motley Fool UK has no position in any of the shares mentioned. 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.
