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Wealth manager M&G‘s (LSE: MNG) one of the highest-yielding passive income stocks on the entire FTSE 100 with a trailing yield of 9.44%. That’s why I bought it.
If M&G can maintain shareholder payouts I can expect a steady stream of dividends over the years. In fact, I received a payment today, and didn’t have to lift a finger to get it. That’s why they call it passive income.
I bought M&G shares on three occasions last year – in July, September and November. In total, I invested £4,000.
The M&G share price has gone nowhere, but I don’t care
The M&G share price plunged 13% in March after poorly-received full-year 2023 results. Over one year, the shares are up a modest 5.19%.
So what went wrong and, possibly more importantly, why aren’t I worried about it?
M&G had a solid 2023, in my view. Adjusted operating profit before tax beat forecasts to jump 27.5% to £797m, beating consensus of £750m.
Yet the was stock sold off because investors were disappointed by a meagre dividend increase of just a 10th of a penny, from 19.6p to 19.7p. Dividend growth’s been slow, as this chart shows, but given the sky-high yield, I’m not too worried.
Chart by TradingView
On 4 September, M&G disappointed again by reporting net outflows of £1.5bn for the six months to 30 June. Adjusted pre-tax operating profits fell 3.8% to £375m.
Again, I’m not too worried, because the market was volatile over the summer. In fact, I’m feeling quite chipper today, as most investors are, after a good week for both the FTSE 100 and S&P 500 in the US.
This isn’t the only dividend I’m getting
If the UK economy picks up and the US Federal Reserve engineers a soft landing, then M&G’s next results may be a lot brighter. Also, the dividend will look even more attractive as interest rates fall and bond yields and savings rates follow. Assuming that happens, of course. We’re not out of the woods yet.
While the share price has disappointed, I’m happy with my second income stream. Today’s £217.07 isn’t my first dividend. On 9 May, M&G paid me a bumper £408.27. On 3 November last year, I bagged £135.59.
So in the last year, I’ve got a total of £760.93. I automatically reinvest every penny. So far my dividends have bought me 364 extra M&G shares at no extra cost, lifting my total to 3,289. Those shares will pay me more dividends in future, which I will reinvest to buy yet more M&G shares, in an endless virtuous circle.
Dividends aren’t guaranteed of course. M&G has to generate the cash to pay them. Also, if the share falls, what I’ve gained in income I could lose in capital.
Over the longer run, I expect to end up comfortably ahead on both fronts. So how do I plan to turn these small, regular payments into a £1m portfolio? By investing in a spread of dividend-paying stocks that keep sending me regular cash payments throughout the year, and reinvesting them again and again and again.
My second income’s turning into capital for my retirement, and I don’t have to do anything to earn it. Apart from buy the shares in the first place.
