I’m targeting £1,768 a year in dividends from £12k in this high-yield UK income stock

I bought high-yield FTSE 100 income stock M&G (LSE: MNG) on three occasions across 2023, investing Â£6,000 in total, and Iâm thrilled by how itâs done. M&G hasnât just given me a steady stream of passive income, its shares have flown too.

M&G was hived off from FTSE 100 insurer Prudential in 2019. The aim was to sharpen its focus on its core European savings, pensions and investment funds, pursue acquisitions and generate better value from its fee-based asset management business. Itâs worked out pretty well so far. The M&G share price is up 45% in the last 12 months and almost 70% over five years.

Thatâs particularly impressive because M&G has been paying such generous dividends. When I bought the stock, the yield was a staggering 10%. Paying that much out each year can slow share price growth, but not here. Adjusted operating profits before tax have grown steadily, from Â£625m in 2022 to Â£797m in 2023 and Â£837m in 2024.

M&G shares fly high

IFRS profit after tax has been more volatile, with a Â£309m profit in 2023 swinging to a Â£347m loss in 2024 due to market fluctuations and accounting adjustments. Markets have looked beyond that. The dividend track record is decent, although shareholder payouts are only set to grow a moderate 2% annually from here.

One issue for new investors is that the high-flying share price has pushed the dividend yield down to 6.5%. Thatâs still the third-highest on the FTSE 100, but not as jaw-dropping as it was.

Today, my original Â£6k is now worth around Â£11,400, a total return of 90%. Of that, roughly 53% is from share price growth and the remainder from reinvested dividends.

I now hold 3,694 shares, of which 666 were effectively dished out for free. That proportion will continue to grow, eventually overtaking my original purchase. Assuming they keep coming, of course.

High-yield FTSE 100 hero

If the 2025 dividend rises 2%, from 20.1p to 20.5p per share, my holding would generate Â£757 in income this year. That could buy another 245 shares at todayâs price of 309p, lifting my total even higher to 3,939.

Looking ahead, Iâm still at least 10 years from retirement. If the forward yield of 6.5% grows 2% annually, my Â£12k stake could be worth Â£20,500 after a decade. That’s just from reinvested income.

If the stock also grows, say, at a steady average rate of 5% a year, the total value could hit Â£27,200. With a 6.5% yield that would produce around Â£1,768 a year in dividends, which I can draw as income without touching my capital. Thatâs the magic of FTSE 100 dividend stocks. Remember, this is just one portfolio holding.

Of course, those figures are all projections. M&Gâs revenues are sensitive to market swings, it faces competition from low-cost passive ETF providers, and over a decade all sorts of unknown risks could appear. Yet I still think the shares are worth considering today.

By investing in a spread of solid, high-yield UK stocks like this one, I feel well set to build a high and rising long-term passive income stream for my retirement.

The post Iâm targeting Â£1,768 a year in dividends from Â£12k in this high-yield UK income stock appeared first on The Motley Fool UK.

Should you invest Â£1,000 in M&g Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if M&g Plc made the list?

See The Six Stocks

More reading

Harvey Jones has positions in M&g Plc. The Motley Fool UK has recommended M&g 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.