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Got a bit of cash to invest after the Christmas splurge and fancy bagging an ultra-high-income from a top FTSE 100 dividend stock? One of my favourites yields almost 7%, and its share price has been flying too.
The company is insurer and wealth manager M&G (LSE: MNG). It split from Prudential in 2019 and has quietly become a compelling option for income investors who fancy a bit of capital growth along the way. Can it continue to fly in 2026?
M&G delivers supersized income and growth
M&G specialises in managing savings and investments for retail and institutional clients, everything from personal pensions to multi-asset funds. Its shares have risen around 55% over three years, with most of that action coming in 2025. The stock climbed 46% in the last year alone, which will have been a handy bonus for anyone who bought it mainly for the dividend.
I was thrilled and surprised in equal measure, having added it to my Self-Invested Personal Pension (SIPP) in 2023 when the yield was around 10%. So far I’m up around 75% in total.
I’m broadly positive about the year ahead too. Base rates have just been cut to 3.75%, and some expect them to hit 3% this year. That reduces the risk-free return from cash and bonds, making high-yield dividend stocks more attractive by comparison.
Cash flow and surplus capital
The board has generated plenty of surplus capital and appears able to support the dividend. M&G has increased payouts every year since floating, five in total, although the 2023 rise was modest at 0.51%. The company has also scaled back dividend growth targets to a more conservative 2% a year, but this should keep payouts sustainable.
On 17 December, UBS downgraded the shares from Buy to Neutral, saying they look fairly valued. That’s a disappointment for bargain seekers, I’ll admit. It also reflects my own view that share price growth is likely to slow from here.
UBS noted that M&G’s solvency ratio of 234% is among the highest in the sector. But it warned M&G would be exposed if we got a major stock market crash at some point. A real biggie could cut its solvency ratio to 170%, but that still gives it a decent capital cushion. As things stand today, UBS thinks M&G has scope to increase shareholder returns. I think the shares are still worth considering for income-focused investors prepared to hold for the long term.
At today’s price of 291p, £2,000 would buy roughly 687 shares. The stock paid a total dividend of 20.1p in 2024. If this rises by 2% in 2025, it would pay 20.5p, generating about £140 in income on that holding. That’s modest initially, but reinvesting the payouts and adding to the position over time could compound into a meaningful passive income stream.
Building long-term wealth
As ever, diversification matters. Holding a mix of dividend stocks alongside other asset types can smooth returns and manage risk. Investors wanting recovery potential might look elsewhere on the FTSE 100. There are still bargains to be had, despite its fantastic recent run.
