I’ve spent summer and autumn buying one FTSE 100 passive income stock after another. I think this has been a brilliant buying opportunity and I didn’t want to waste it.
It seems that everyone is down on the UK right now, and UK shares. It started with Brexit, continued through the pandemic and now the cost-of-living crisis.
I’m old enough to know these things go in cycles. At some point, market sentiment will swing back in the UK’s favour. I want to open my exposure to high-yielding blue-chips before that happens, rather than afterwards.
I’ve been on a spree
I love buying shares when people don’t like them, because they’re cheaper. I’ve snapped up a heap of dirt cheap, high yielders including Lloyds Banking Group, Glencore, Legal & General Group, M&G, Smurfit Kappa Group and Taylor Wimpey.
If I had the money, I would top up my holdings in any of these six like a shot as I think the FTSE 100 could climb higher as interest rates peak and fall. Yet I’ve only got enough cash to buy one.
Ultimately, it was a no-brainer. I’m buying fund manager M&G. It’ll be the fourth time I’ve bought its shares in the last year. I can’t resist it.
The obvious appeal is its yield, which is currently a blistering 9.28% (down slightly from 9.68% when I last bought it, but still good). That’s one of the very best on the FTSE 100, unsurprisingly.
Better still, management seems committed to maintaining shareholder payouts at current levels. Analysts reckon the stock will yield 9.56% in 2023 and 9.82% in 2024.
Can’t wait to buy it
Unlike some FTSE 100 dividends stocks, its share price is showing signs of life too. It’s up 10.46% over the last year. Throw in the dividend and that’s a total return of around 20%. Remember, this is at a time when the stock market is struggling and some reckon cash beats shares. Not for me it doesn’t. When markets pick up, net assets under management and customer inflows will almost certainly rise, and with luck the M&G share price should rise, too.
I’m not the only one who likes M&G. On 28 November, Goldman Sachs called it a buy, stating it had “attractive growth, capital returns, and valuation”. I was a bit irritated by that. It pushed up the price a few percentage points, before I had time to react and buy it myself.
Goldman Sachs analysts also noted that M&G has a large balance sheet, which allows the firm to seed assets and helps to drive inflows, “while also generating sufficient capital to cover its dividend and deleverage over time”.
Some deleveraging would be welcome. The leverage ratio jumped from 28% to of 35% in full-year 2022, as Solvency II funds were hit by that year’s crash. It’s no longer cheap, trading at 15.4 times earnings. Another risk is that last week’s FTSE 100 recovery fizzles out, taking down the M&G share price.
That won’t stop me. I buy shares with a 10-year view. The reinvested dividends alone will more than double my money, providing they are maintained (no guarantees, remember). I just wish I had more money to throw at M&G. It’s my favourite income stock by far.
