Income opportunity of the decade? I’ve just bought this FTSE 100 stock for its 10% yield

This FTSE 100 stock offers one of the highest yields around, and I think there’s a good chance it could prove sustainable as well.

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M&G (LSE: MNG) shares offer one of the highest yields on the entire FTSE 100, paying income of almost 10% a year. Normally, when I see a double digit yield I duck and cover, because they’re rarely sustainable. Yet I reckon there’s a good chance this one will hold up.

I learned a hard lesson last autumn when I bought Rio Tinto and Persimmon, which yielded 10% and 20% respectively. Within months, they had slashed their dividends by 25% and 75% respectively. So why do I think the M&G yield is more sustainable?

I’m hoping this yield will last

M&G’s dividend per share has risen only slowly over the last three years, from 18.23p in 2020, to 18.3p in 2021, then 19.6p in 2022. Markets anticipate another small hike this year to 19.7p. I’m not complaining though, given the king-sized yield.

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The stock is forecast to yield 9.76% this year then 9.93% in 2024. That’s a brilliant rate of income, if it comes through. And it might. In June, the board said it remained committed to its “disciplined capital management framework and policy of stable or increasing dividends per share”.

The financial position is robust, with a 200% solvency coverage ratio. This Wednesday, the board stuck to its commitment to generate £2.5bn of operating capital during the 2022/24 accounting period, and said it was on course to meet its longer-term targets. It’s also aiming for £200m of cost savings by the end of 2025.

It’s been bumpy for wealth managers

2022 was a turbulent year for stock markets and M&G’s full-year adjusted operating profits fell 27% to £529m. It posted a loss of around £1.62bn, but that was mostly due to technical reasons as it switched to an IFRS reporting basis. Client inflows held up, and it won two big institutional mandates in the Netherlands and Switzerland. 

M&G shares have underwhelmed since it was hived off from Prudential. They opened at 202p on 21 October 2019 and trade at 204.75p today. Over 12 months, they are down 5.7%. I saw this as an opportunity rather than a threat though, and decided M&G would lead the stock market revival once inflation eases. Using this reasoning, I bought it on 12 July.

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I got lucky with my timing. The stock jumped 4.15% on Wednesday, 19 July, when June’s promising inflation figure came through, and another 2.78% on Thursday.

So far, I’m up 8.93% in less than two weeks. It’s always nice to get off to a good start, but given today’s stock market volatility, my quick gains could easily turn into losses. That’s not a problem. I plan to hold the stock for a minimum five to 10 years, and ideally longer than that. As always with investing, it’s the long term that matters.

As well as a brilliant level of income, I think my shares have the scope for plenty of capital growth too, as investor sentiment picks up. I could be wrong, of course. Markets could underperform. Double-digit yields are fragile. But I reckon this is more robust than most. If I’m right, M&G could prove to be the income stock of the decade. Fingers crossed!

Of course, there are plenty of other passive income opportunities to explore. And these may be even more lucrative:

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Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has positions in M&G Plc, Persimmon Plc, and Rio Tinto Group. The Motley Fool UK has recommended M&G Plc and Prudential 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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