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I’m a big fan of super-high-yield FTSE 100 shares. Right now, M&G (LSE: MNG) stands out with a trailing dividend yield of 8.96%.
I’m building up my stake in the wealth manager and hope to generate thousands in passive income when I retire. Now I’m wondering just how far I could take it.
Today, the new State Pension pays a maximum of £11,973 a year. Could I effectively double that, purely by investing in M&G? After all, it’s the highest yielder on the FTSE 100.
I’d still need to buy a lot of its shares though.
Income hero
For the full-year 2024, M&G paid a total dividend per share of 20.1p. Markets expect that to increase to 20.6p this year, a modest rise of almost 2.5%.
So how many shares would I need to buy today to generate £11,973 in 2025? Answer: 58,121. Today, M&G stock trades at 224.8p. So those shares would cost me a thumping £130,656.
This is obviously way beyond my £20,000 Stocks and Shares ISA allowance. Not to mention my means.
It’s achievable over time, but in practice I’d be crazy to put all my money into one stock. Too much risk.
While the M&G share price is up 12% in one year and 60% over five years, it’s been a bumpy ride along the way.
Financials tend to be beyond the front line of stock market volatility, which can hit customer inflows and the value of net assets under management.
Huge shareholder payouts
As an old-school active fund manager, M&G also has been squeezed by the rise of exchange traded funds (ETFs). In an era of passive indexation, it must constantly justify its fees.
The board is exploring new areas of revenue, from bulk annuities to financial advice, but there’s no guarantee they’ll pay off.
I still think it’s a fantastic dividend stock to consider. And by investing every shareholder payout, it’s possible to build up a decent stake over time. Just maybe not £130,656.
However, by investing in a diversified spread of FTSE 100 dividend it’s possible to build a lot more than that, while reducing risks.
Let’s say an investor created a balance portfolio yielding 5% a year. At that rate, a portfolio worth £239,460 would deliver the same level of income as the full new State Pension.
Spread it around
That income would be likely to grow over time. And drawing it doesn’t involve touching the capital, which can also grow – or fall, that’s the stock market for you.
Personally I’m aiming to generate a bigger portfolio. And somebody who invests £300 a month and generates a total return of 7% a year, roughly in line with the long-term FTSE 100 average, could accumulate £363,863 over 30 years. With a 5% yield, it would bring income of £18,193 a year. That’s more like it.
This assumes all dividends are reinvested, and only drawn as a second income in retirement.
The State Pension is a solid base but it isn’t enough to live off comfortably. Building a portfolio of high-yielding FTSE 100 shares like M&G can help transform retirement for the better. Always diversify though. There are plenty more top income stocks out there, some with strong growth prospects too.
