The FTSE 100 index has experienced more volatility than usual due to rising inflation, surging costs, the energy price crisis, as well as the unfortunate events in Ukraine. Despite this, I feel there are some excellent opportunities to add shares to my holdings currently. One stock I like the look of is M&G (LSE:MNG).
Asset management firm
M&G is a UK-based international savings and investment business. Its business is split into five core segments. It is worth noting that M&G was derived from a demerger from financial giant Prudential back in 2019. In three short years, it has become a fully fledged FTSE 100 member and possesses a market cap of close to £5.5bn.
As I write, M&G shares are trading for 215p. At this time last year, the shares were trading for 202p, which is a 6% return over a 12-month period. A recent excellent annual report boosted the M&G share price earlier this month.
FTSE 100 stocks have risks
I have two primary concerns with M&G. Firstly, one of its biggest attractions is its dividend yield (more on that later). Dividends aren’t guaranteed and can be cancelled at any time. This would affect any passive income I hope to make. In addition to this, recent rumblings of a potential stock market crash could affect earnings and payouts. I will continue to monitor developments, however.
Next, M&G is a relatively small fish in a very large, lucrative pond. Despite being a £5.5bn market cap business, there are many bigger, more established asset management and investment firms out there. This means M&G are at risk of losing business to the competition, which would, in turn, affect performance and payouts.
Why I like M&G
M&G has a juicy dividend yield of just under 9% currently and the shares look dirt-cheap to me. The FTSE 100 dividend yield average stands at between 3% and 4%. This is better than current inflation levels. The shares are trading on a price-to-earning ratio of just nine, which looks cheap to me.
The recent full-year report released by M&G made for excellent reading, in my opinion. Despite profit dipping from £788m to £721m, the company confirmed it hit all its demerger targets. The primary one was capital generation of £2.8bn in two years. It managed to achieve this early and also managed to save £145m a year ahead of schedule. It has already paid out lots in dividends but a £500m share buy back scheme will also boost the coffers of its investors.
M&G could also be well placed to benefit from current macroeconomic trends. The UK possesses an ageing population. This means the demand for life insurance and investment-related business could increase. This would boost M&G’s earnings and potentially increase payouts to investors too.
I like the direction M&G is heading in and I am especially buoyed by its dividend yield. This is why I recently purchased a small number of shares for my holdings and would consider adding more.
