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I’ve spent the final yr shopping for high-yielding FTSE 100 shares that I hope pays me a super-sized second revenue in retirement.
With the FTSE 100 heading to new all-time highs, most have picked up by 15% or 20% in simply six to 9 months. With one exception. Wealth supervisor M&G (LSE: MNG).
I purchased my first stake final July, and when the shares confirmed indicators of life, I purchased it twice extra in November. That month I obtained my first dividend too. It was my largest holding, and a private favorite. For some time.
Struggling revenue share
M&G shares had carried out poorly for the reason that firm was hived off from Asia-focused insurer Prudential in 2019. I like shopping for shares once they’re out of favour. That provides me a decrease entry worth and reduces threat. At the very least in concept.
Additionally, when an organization’s share worth falls, its dividend yield rises by default. M&G was paying revenue of greater than 9% a yr once I purchased it. I’d learn its firm experiences and determined the dividend was sustainable.
I wasn’t deterred by the truth that M&G suffered a £2.5bn pre-tax loss in 2022, reversing the earlier yr’s £788m revenue. Belongings underneath administration fell 7.6% to £342bn, down from £370bn.
The board stated this was “pushed by detrimental market actions from the volatility skilled in markets all through a difficult yr”. I used to be assured by information that it was nonetheless on monitor to generate £2.5bn in capital by 2024, whereas the board hiked the overall dividend by 7.1%, from 18.3p to 19.6p.
I made a decision markets had been lacking a trick, and this was my alternative to get in on the backside, with the intention of holding the shares for years and years, to offer these dividends time to compound and develop.
Nice yield, poor progress
That’s nonetheless the plan, however I’ve been shocked and disenchanted to see M&G buck the latest upwards development, and plunge whereas the FTSE 100 has been rising.
The M&G share worth is down 14.65% within the final month, whereas the FTSE 100 as a complete jumped 3.26%. Over 12 months, the inventory is up simply 2.24%. That’s marginally larger than the FTSE 100 1.57% however not precisely nice.
So did M&G ship a dismal set of outcomes? Fairly the reverse. On 21 March, it posted a 28% rise in adjusted working revenue earlier than tax to £797m, smashing consensus forecasts of £750m. Web consumer flows, adjusted earnings and working capital technology all climbed.
But the board granted traders solely a tiny dividend hike, from 19.6p to 19.7p, an increase of a tenth of a penny. Given the trailing yield of virtually 10%, I’m not complaining. Markets apparently take a special view.
M&G appears a bit like a worth lure, whose shares would possibly by no means develop. Buying and selling at 16.07 instances earnings, they give the impression of being absolutely valued. But I’m proud of the yield and general firm course. I’d make investments extra, besides it’s one in every of my largest portfolio holdings, so I’ll simply maintain and bide my time.
My subsequent dividend of 13.2p per share is due on 9 Could. I’m wanting ahead to reinvesting it to choose up a couple of extra M&G shares (and a bit extra second revenue too).
