Right now, table-topping UK easy-access savings accounts pay interest rates of around 4.3% a year. Coincidentally, this is identical to the 4.3% forward dividend yield on offer from the elite FTSE 100 index. Then again, cash deposits are almost risk-free, while shares are far riskier.
I prefer cheap FTSE 100 stocks to cash
Next month, my wife and I will receive a tax-free lump sum, which we plan to invest largely into undervalued shares. In particular, I see bargain buys galore in the Footsie and the mid-cap FTSE 250 index.
Of course, we do keep a sizeable sum in cash to pay for emergencies, unexpected expenses and so on. But the bulk of our family fortune is invested in shares for long-term growth. Plus, while we own these stocks, we can look forward to collecting juicy dividends.
One of my Footsie favourites
One FTSE 100 firm whose shares are right near the top of my buy list is asset manager M&G (LSE: MNG). The group’s shares took a beating in 2022, due to hefty falls in both stock and bond prices. But I suspect that this share could be one of the Footsie’s biggest giveaways today.
As I write (on Wednesday afternoon), the M&G share price stands at 193.15p, which values this investment manager at £4.6bn. This makes it a FTSE 100 minnow — and small enough to be gobbled up with ease by much larger UK or US rivals.
Here’s how the M&G share price has performed over seven different periods:
| One day | +1.2% |
| Five days | +0.7% |
| One month | -2.6% |
| Year to date | +2.8% |
| Six months | +2.7% |
| One year | -2.6% |
| Five years | -14.2% |
My table shows that this FTSE 100 stock has pretty much gone nowhere in 2023 and over the past year. It’s bobbled along up and down, without making much headway in either direction. However, the shares are down a seventh in the past five years.
A bumper Footsie cash yield
What draws me to this cheap stock is its mouth-watering dividend yield. Analysts expect a cash payout of 20p a share for 2023, rising to 20.5p for 2024. These equate to cash yields of 10.4% and 10.6% respectively.
However, history (and bitter experience) has taught me that double-digit dividend yields rarely last. Sometimes, payouts get cut or cancelled, causing share prices to plunge. But at other times, share prices climb, pushing dividend yields down.
With M&G, I hope the latter happens. But to meet this year’s dividend payout would require all of 2023’s earnings. Hence, perhaps the board might decide to trim the dividend, but not slash it?
Also, I could imagine any suitor looking to buy this business paying a substantial bid premium to the current share price, so as to win over current shareholders. But this is only (hopeful) part of my investment case for buying this FTSE 100 share.
In summary, I can’t wait to buy this Footsie stock as soon as possible. However, if financial markets do go into meltdown again, then owning M&G shares could become a rocky ride in 2023/24!
