This blue-chip comes with a killer 7.6% dividend yield – can it last?
A handful of FTSE 100 stocks offer dividend yields to die for. And you know what? They get me every time.
I hold housebuilder Taylor Wimpey, which has a trailing yield of 9.1%. I also hold Phoenix Group Holdings (which yields 7.96%) and Legal & General Group (8.89%).
But my favourite ultra-high-yielder is wealth manager M&G (LSE: MNG). It hasn’t just handed me bags of income since I bought it a couple of years ago, but capital growth too. M&G shares are up 30% in a year, and almost 60% over five.
The share price is a killer too
All dividends are on top of that. So investors looking at the performance tables may not realise just how well M&G has done on a total return basis.
As everyone knows, a high yield can also be a sign of risk. So is the payout sustainable?
M&G floated in 2019, after being peeled off from insurer Prudential. Since then, dividend growth has been sluggish. In 2021, it increased the total dividend per share by just 0.38% to 18.3p. Investors got a 7.1% increase in 2022 to 19.6p, but just 0.51% in 2023 and 2.03% last year. That lifted the full-year 2024 dividend per share to 20.1p.
Itâs hard to complain, given the stonking yield. Also, the board has said it will maintain a “progressive dividend policy”, hiking by around 2% a year in future. Thatâs less than inflation, which was 3.8% in August, but not bad.
Shareholder payouts look well supported. At the end of last year, M&Gâs key Shareholder Solvency II coverage ratio was a handsome 223%. In the first half of 2025, it nudged up to 230%, and that was after funding the May dividend.
It also generated £408m of operating capital generation, a number the board described as âstrongâ. That was down from £486m in the first half of 2024, but an 11% increase to £331m on an underlying basis. Operating profits climbed too, if only by £3m to £378m.
Stock market crash alert
Of course, there are risks. There have been a blizzard of warnings about a potential stock market crash. That would hit the value of M&Gâs assets under management and may squeeze net customer inflows.
As an active manager, M&G also has to survive the shift to cheap, passive index tracking strategies, as exchange traded funds (ETFs) dominate.
On Monday (13 October), I was intrigued to see broker Berenberg turn its attention to UK life insurers. I was happy to see it upgraded M&G from Hold to Buy. Better late than never!
Berenberg highlighted strong first-half asset management net inflows of £2.6bn and the huge opportunity presented by the fast-growing UK workplace pensions market. It lifted its price target from 225p to 342p.
Higher growth target
Today, the M&G share price is just under 265p. If Berenberg’s forecast is correct â never guaranteed â that would suggest growth of 30% from here. Which I would lap up, along with those juicy dividends.
I think M&G is still well worth considering for income-focused investors. Especially since its strategic partnership with Dai-ichi Life is expected to generate at least $6bn dollars of new business over five years. I have an outsized stake in the stock, but I’m still tempted to buy more myself.
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Harvey Jones has positions in Legal & General Group Plc, M&g Plc, Phoenix Group Plc, and Taylor Wimpey Plc. The Motley Fool UK has recommended M&g Plc and Prudential 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.
