As a shareholder in asset manager M&G (LSE: MNG), I like the hefty dividends the firm pays. But sometimes a high dividend yield can be a red flag that a cut might be on the cards. So, looking at the M&G dividend forecast, does it make sense for me to continue holding the shares?
Growing payout
In short, I think it does – and that is what I plan to do.
I reckon there is a good chance that M&G will be able to maintain its current payout. In fact, I think we may even see modest rises in coming years.
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The company’s strategy is to maintain or increase the payout each year. But a strategy does not guarantee what will actually happen in practice. After all, dividends are never a sure thing.
Last year, the annual payout grew, albeit by a fraction of a percentage point. At the interim stage this year, the dividend grew 1.6% compared to the same point last year. The recent direction of travel is in line with the company’s stated strategy.
M&G dividend forecast
So, will there be an increase at the full-year level and in years to come?
That depends on how the business performs. At the interim stage, M&G struck a positive note at the same time as lifting its interim payout. It said it was “cautiously optimistic” about the turnaround in its wholesale asset management division. That part of the business had reversed a trend of net client outflows. Across the business overall, excluding its Heritage operations, the picture was the same.
M&G said it expected to deliver “consistently strong investment performance set against a challenging period for our sector” for 2022. Full-year results including details of the final dividend are due to be released on 9 March.
Strong performance could help the company make good profits and support an increased payout. With its well-known brand, large customer base and deep City experience, I think the asset manager has the building blocks in place to make that happen.
Possible risks
But things could still work out differently.
Although the company turned around client flows in the first half, it will need to keep working hard in future to maintain positive client inflows. The market is competitive. Turbulent stock markets may also lead some investors to withdraw funds. Short-term swings in asset values could also eat into reported profits, although I think the long-term outlook remains appealing.
Such swings explain why the company reported a post-tax profit of £92m last year, insufficient to cover the dividend. But as a long-term investor I remain confident, as the couple of years before that saw post-tax profits of over £1bn each. I think it is realistic to expect similar annual earnings for at least some future years. That could comfortably cover a dividend above today’s level.
My move
The M&G dividend forecast looks good to me. I expect to keep receiving payouts that equate to a 9.2% yield at the current share price — or higher.
For that reason, I plan to hold my shares indefinitely.
