10%+ yields! Here’s the dividend forecast for M&G shares to 2026

Only Phoenix Group offers a larger forward dividend yield than M&G shares. Does this make the FTSE 100 firm a top stock to consider?

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

M&G‘s (LSE:MNG) been one of the FTSE 100‘s greatest dividend shares to buy in recent times. Not only have dividend yields smashed the market average since 2019. Shareholder payouts have risen steadily since the company was spun out of Prudential five years ago.

M&G dividend history
Source: TradingView

What makes M&G such an attractive share to me today is its double-digit dividend yield. For 2024, only Phoenix Group carries a larger yield on the Footsie today.

And as the chart below shows, City analysts expect cash rewards to keep rising to 2026 at least, pushing the yield even further above 10%.

YearDividend per shareDividend growthDividend yield
202420.07p2%10.2%
202520.63p3%10.5%
202621.26p3%10.8%

However, before buying any dividend share, I need to think about how realistic current forecasts are. I also need to consider whether M&G’s share price will keep sinking, which could offset any large dividends.

Here’s my verdict.

Financial foundations

On first look, those predicted dividends on M&G shares appear somewhat fragile. This assessment’s based on the easy-to-calculate dividend cover ratio. As an investor, I’m looking for a wide margin of safety, namely a reading of 2 times and above.

Unfortunately, the predicted dividend for this year’s actually higher than estimated earnings. And while profits are tipped to surge in 2025 and 2026, dividend cover’s still weak, at 1.2 times and 1.3 times respectively.

In theory, this leaves dividend forecasts in danger if earnings disappoint. However, M&G has a cash-rich balance sheet to fall back on if profits underwhelm.

Its Solvency II capital ratio — a key signal of liquidity — was 210% as of June, double the regulatory requirement and up 7% year on year.

Encouragingly for future dividends, M&G’s also recently upgraded its three-year cash generation target, to £2.7bn from £2.5bn previously.

Robust outlook

On balance then, I think there’s a great chance that M&G will meet brokers’ dividend forecasts. Poor dividend cover in recent years has been frequent. Yet it hasn’t stopped the distribution of large and growing cash payouts.

But does this make the business a potential buy? As I say, its share price slumped from late March after the company went ex-dividend. And it’s continued to struggle since then as worries over the UK economy persist.

However, I expect M&G’s shares to recover strongly over time. As a leading provider of pensions and other investment products, I expect profits to steadily rise as an ageing population drives demand for retirement services.

Though it faces high competition, I feel the FTSE firm has the expertise and the brand recognition to capitalise on this opportunity.

The verdict

M&G's share price
Source: TradingView

At 196p per share, M&G shares offer those huge 10%-plus dividend yields. But that’s not all for value chasers to get excited about. Its price-to-earnings growth (PEG) ratio for this year is just 0.4. Any reading below 1 suggests a share’s undervalued, based on expected earnings.

It’s not without risk. But, on balance, I think M&G’s a top dividend share to consider. And especially at today’s price.

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.

Royston Wild has positions in Prudential Plc. 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.

More on Investing Articles

Investing Articles

Should I sell my FTSE All-Share index fund and buy a S&P 500 tracker instead?

Harvey Jones is wondering whether now is a good time to invest more money in the S&P 500, after a…

Read more »

Investing Articles

Should I buy dirt-cheap BT shares after the recent pullback?

BT shares were on the up but now they're sliding again after the board trimmed full-year guidance. Now Harvey Jones…

Read more »

Investing Articles

Up 28%, can the easyJet share price keep rising?

The easyJet share price has gained altitude over one year but plunged over five. Is now an attractive time for…

Read more »

British Isles on nautical map
Investing Articles

Should I buy more BAE Systems shares at 1,350p?

BAE Systems shares have had a fantastic run since early 2022, yet still don't appear overvalued. Is it now time…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

7% yield and a cheap valuation! Is this one of the best shares to buy this month?

Christopher Ruane has been looking for cheap shares to buy. This one has a 7% dividend yield, so is it…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Should I buy National Grid shares for the big dividend before it’s too late?

This year's price weakness has left National Grid shares on what looks like a tempting valuation. I hope it doesn't…

Read more »

Investing Articles

There are now 5,000 ISA millionaires! See the surprising UK dividend shares they’re buying

The number of ISA millionaires is growing all the time and guess what? They're really into blue-chip dividend shares listed…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Down 38% in weeks! Time to snap up NIO stock?

NIO stock's more than doubled in value over the past five years but has been on a wild ride lately.…

Read more »