The FTSE 100 index is full of high-yield stocks right now. With share prices down due to general market weakness, yields are up.
Here, I’m going to put the spotlight on a stock with a current yield of over 10%. Is it worth buying for the monster dividend?
A Footsie high-yielder
The FTSE 100 company in focus today is M&G (LSE: MNG). It’s a savings and investments company that was previously part of Prudential. Serving both individuals and institutions (such as pension funds), it aims to help customers manage and grow their savings and investments responsibly.
Now since its demerger from Prudential back in 2019, M&G has paid out some sizeable dividends. Last year, it paid out 19.6p per share, which equates to a current yield of 10.1%.
This year though, City analysts expect an even higher payout. At present, the dividend forecast for FY2023 is 20.1p per share. That translates to a huge yield of 10.4% at the moment.
Worth buying for income?
Now often when a stock has an enormous dividend yield like this, it’s a sign the company is in financial trouble. What’s happened is that the ‘smart money’ has dumped the stock, pushing its share price down and its yield temporarily up.
Looking at M&G today though, I don’t see any major fundamental problems. It appears to be quite a resilient business.
Last year, for example, the group reported a Solvency II coverage ratio of 199%. This indicates the company has more than enough capital to cope with worst-expected losses.
Meanwhile, the company is focused on becoming leaner still, in order to deliver a higher level of profitability. It believes that by simplifying its business, it can generate £200m of cost savings by 2025.
It’s worth noting here that there has been some recent takeover speculation in relation to M&G. Last month, there were rumours that Australian firm Macquarie could be interested in buying the FTSE 100 company. This is encouraging.
So, overall, there’s plenty to like about this business.
Is the dividend secure?
It’s worth pointing out however, that the huge dividend payout here may not be sustainable. Last year, dividends to shareholders cost the firm around £464m. Yet due to adverse market movements, total capital generation was -£397m.
For the company to maintain its high payout, it will need to improve its financial performance and generate the cash flow to pay its dividends.
Given the current level of volatility in the world’s financial markets, there’s a bit of uncertainty here.
My view on M&G
On balance though, I think this stock looks interesting from an income investing perspective.
That said, if I was investing in this company, I’d want to own plenty of other stocks for diversification.
