There are many UK stocks vying for the title of ‘best to buy now’. And, for me at least, some of the big dividends coming from financial stocks put them firmly in the lead.
The 9.1% on offer from investment manager M&G (LSE: MNG) looks like one of the best. And that’s even after the share price has picked up a bit. Not long ago, the forecast yield was in double digits.
Top financial stock
I’m big on financial stocks most of the time. And when so many look like they’re being hammered, the contrarian in me wants to stock up on them.
It would weigh my Stocks and Shares ISA a bit heavily in one direction, mind. And I do consider diversification to be a key element of long-term investing.
But then I remember something billionaire investor Warren Buffett said back in 2016: “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons“.
So maybe diversification can wait. And 2024 might be a year to fill my finance stock washtub.
Best of the best
Right now, I really like the look of Barclays, which I think is irrationally undervalued. I also quite fancy a top-up on my Lloyds Banking Group or Aviva holdings.
But I don’t hold any investment manager stocks at the moment, and that big M&G dividend might sway me.
It’s not all plain sailing though, after the firm delivered a loss in 2022. It looks like we should be on for a profit for 2023. But the implied price-to-earnings (P/E) ratio of 16.5 isn’t exactly a steal.
That should drop based on further forecasts. But there’s another reason for caution.
Assets
At the and if the first half, assets under management had fallen further. At 30 June, the total stood at £333bn. That’s down from £342bn six months previously. And from £349bn in June 2022.
That looks to be mostly down to asset value weakness though. And we saw a net client inflow of £0.7bn in the half.
Client flows have been all over the place since the 2020 stock market crash. And that’s a big cause of uncertainty right now.
Outlook
But, at the H1 point, the board did say the company was “on track to achieve our operating capital generation target of £2.5 billion by 2024, and we are making good progress on our 2025 financial targets“.
Could M&G really be the best FTSE 100 stock to buy right now? There’s still one big risk that the whole sector faces. We don’t know if we’ll hit an economic crisis in 2024.
Could the Bank of England’s efforts to bring down inflation go too far and tip us into a tough recession? Until we know the answer, I think financial stocks could remain weak.
Still, I’m not sure about the best FTSE 100 stock right now, but M&G might just be in my watchlist top three.
