Like a lot of investors, I think earning big dividends from a share I own has a lot of appeal. One high-yield share I already own raised its interim payout this week, meaning the prospective dividend yield is a juicy 10%.
So, should I buy more of its shares for my ISA? Or, despite the eye-catching yield, could I be better off investing the money elsewhere?
Companies or investment trusts
As an investor, there are different ways to try and earn a high yield from stock market investments.
Should you invest £1,000 in M&G right now?
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One is to invest directly in companies that have a big dividend. Another is to buy into investment trusts that themselves own shares in a wide range of businesses.
In this case, the 10%-yielder I have in mind is a company: M&G (LSE: MNG).
But an alternative to putting spare money into M&G for me could be investing in an investment trust like the Income & Growth Venture Capital Trust. It yields even more than M&G, at 10.9%.
One advantage of investing in an investment trust is that it is more diversified than an individual business. So one business performing weakly will not necessarily lead to the dividend being cut (although in the case of Income & Growth, its payout has moved around a lot over the years partly because of the performance of its own investments).
Individual business quality
However, if I invest in the share of a company like M&G, its dividend prospects are more firmly tied to its specific business performance. A high-yield share can suddenly cancel its dividend overnight, as we saw this year with Direct Line.
I would be happy to invest in either kind of share. In each case, I would consider the likely future performance of the business.
M&G looks to be in good health to me. It grew both its adjusted operating profit before tax and operating capital generation compared to the same period last year. Excluding its Heritage division, it saw net inflows of client funds.
There are risks here, though. The company operates in a highly competitive field. That can put pressure on commissions as rivals seek to grow market share. If its asset managers perform weakly, clients may pull funds, leading to lower profits.
Capital gain prospects
Nonetheless, a 5% dividend increase on top of an already high yield strikes me as a vote of management confidence. M&G aims to maintain or grow its dividend annually, although that is never guaranteed.
But the share looks unloved. It is up 4% in the past year but remains 10% below its 2019 listing price.
Past performance is not an indicator of what will happen next. But, even with a 10% yield, M&G might not be the best high-yield share I could buy today if the share price continues to languish. I reckon other shares may offer me both a juicy yield and the prospect of share price growth thanks to faster sales growth than we have been seeing at M&G.
Still, whether or not it is my very best option, the high yield at M&G continues to grab my attention. If I had spare cash to invest today, I would be happy to buy more of the shares for my ISA.
