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wealth manager M&G(LSE: MNG) one of the highest-performing passive income stocks in the world FTSE 100 with a final yield of 9.44%. That's why I bought it.
If M&G can maintain payments to shareholders, I can expect a steady stream of dividends over the years. In fact, I received a payment today and I didn't have to lift a finger to receive it. That's why they call it passive income.
Last year I bought M&G shares on three occasions: in July, September and November. In total, I invested £4,000.
The M&G share price hasn't gone anywhere, but I don't care
M&G's share price plunged 13% in March after poorly received 2023 results. In a year, the shares are up a modest 5.19%.
So what went wrong and, possibly more importantly, why am I not worried?
In my view, M&G had a strong 2023. Adjusted operating profit before tax beat forecasts and rose 27.5% to £797m, beating the consensus of £750m.
However, shares sold off as investors were disappointed by a meager dividend rise of just a tenth of a cent, from 19.6p to 19.7p. Dividend growth has been slow, as this chart shows, but given the very high yield, I'm not too worried.
Chart by TradingView
On 4 September, M&G disappointed again, reporting net outflows of £1.5bn for the six months to 30 June. Adjusted operating profits before tax 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 cheerful today, like most investors, after a good week for both the FTSE 100 and the S&P 500 in the US
This is not the only dividend I receive
If the UK economy recovers and the US Federal Reserve manages a soft landing, M&G's next results could be much brighter. Additionally, 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 me, I am happy with my second source of income. Today's £217.07 is not my first dividend. On May 9, M&G paid me an extraordinary sum of £408.27. On November 3rd last year, I pocketed £135.59.
So in the last year I made a total of £760.93. I automatically reinvest every penny. So far, my dividends have allowed me to buy an additional 364 M&G shares at no extra cost, bringing my total to 3,289. Those shares will pay me more dividends in the future, which I will reinvest to buy even more M&G shares, in a virtuous cycle endless.
Of course, dividends are not guaranteed. M&G has to generate the cash to pay them. Furthermore, if the stock falls, what I have gained in income I could lose in capital.
Long term, I hope to finish comfortably ahead on both fronts. So how do I plan to turn these small, regular payments into a £1 million portfolio? Investing in a variety of dividend-paying stocks that continue to send me regular cash payments throughout the year, and reinvesting them over and over again.
My second income is being converted into retirement capital and I don't have to do anything to earn it. Other than buying the shares in the first place.
