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I have spent the last year buying high yield bonds. FTSE 100 stocks that I hope will provide me with a huge second income in retirement.
With the FTSE 100 heading for new all-time highs, most have rallied between 15% and 20% in just six to nine months. With one exception. wealth manager M&G (LSE: MNG).
I bought my first share last July, and when the stock showed signs of life, I bought it twice more in November. That month I also received my first dividend. It was my biggest entry and one of my personal favorites. For a moment.
Revenue Sharing Commitment
M&G shares had performed poorly since the company split from the Asia-focused insurer. Prudential in 2019. I like to buy stocks when they are out of favor. That gives me a lower entry price and reduces risk. At least in theory.
Additionally, when a company's stock price falls, its dividend yield increases by default. M&G was paying an income of over 9% per annum when I bought it. I read your company reports and decided that the dividend was sustainable.
I was not deterred by the fact that M&G suffered a £2.5bn pre-tax loss in 2022, reversing the previous year's £788m profit. Assets under management fell 7.6% to £342bn, from £370bn.
The board said this was “driven by negative market movements due to the volatility experienced in the markets during a challenging year”. The news assured me that it was still on track to generate £2.5bn in capital by 2024, while the board increased the total dividend by 7.1%, from 18.3p to 19.6p.
I decided the markets were missing a trick, and this was my chance to get to the bottom, intending to hold the stock for years and years, to give those dividends time to compound and grow.
High yield, poor growth
That's still the plan, but I've been surprised and disappointed to see M&G buck the recent uptrend and sink while the FTSE 100 has been rising.
The M&G share price is down 14.65% in the last month, while the FTSE 100 as a whole has jumped 3.26%. In 12 months, the stock is up just 2.24%. That's slightly higher than the FTSE 100's 1.57%, but not exactly great.
So M&G had dismal results? Quite the opposite. On March 21, it posted a 28% rise in adjusted operating profit before tax to £797m, beating consensus forecasts of £750m. Net customer flows, adjusted earnings and operating capital generation increased.
However, the board granted investors only a small dividend increase, from 19.6p to 19.7p, an increase of a tenth of a cent. Given the final yield of almost 10%, I'm not complaining. The markets apparently have a different opinion.
M&G looks a bit like a value trap, whose shares may never grow. Trading at 16.07 times earnings, they look fully valued. However, I am happy with the performance and overall direction of the company. I would invest more, except it's one of the largest holdings in my portfolio, so I'll just wait and bide my time.
My next dividend of 13.2 pence per share is due on May 9. I'm looking forward to reinvesting it into some more M&G shares (and a bit more second income too).
