Image source: Getty Images
Passive income from dividends can be a powerful motivator for investing. Take my share M&G (LSE: MNG) for example. The asset management company has a dividend yield of 9.8%. That means that if you spent just £100 on shares today, you would hopefully earn an M&G dividend of £9.80 each year.
In fact, things could be even better than that.
He FTSE 100 The company's policy is to target or increase its dividend each year. Pay per share has grown annually since M&G was separated from Prudential in 2019. It also bought back shares during that period, meaning it was able to pay a larger dividend per share and actually spent less overall to make those payments.
But no dividend is ever guaranteed. M&G has a stated dividend policy that does not foresee a cut, but whether it can deliver will ultimately depend on how the business performs in the future.
Current strengths and challenges
I remain optimistic about the company's prospects. In fact, that's why I still hold my stocks.
The demand for asset management is high. The sums involved are substantial, so the opportunity to receive fees and commissions is substantial.
M&G's retail customer base numbers in the millions. In addition, it also has institutional clients. Thanks to its geographical spread, its recognized brand and its long experience in asset management, I believe it can differentiate itself from its rivals. That should be good for business performance.
Excluding its Heritage business, the company recorded net customer flows of £1.1bn last year. In other words, more money came in than went out.
It generated almost £1bn of operating capital. I think that's impressive given its market capitalization of £4.8bn. It is also important because generating capital is the basis for maintaining M&G's dividend.
That doesn't mean everything is going smoothly. One risk that worries me is the exit of clients in the UK institutional business. This happened last year and could continue to happen due to changes in the defined benefit pension market. A weak economy that prompts retail customers to withdraw funds could also hurt revenue and profits.
Promising dividend prospects
However, overall I remain optimistic about the long-term prospects.
Therefore, I am hopeful that M&G's dividend will not only be maintained, but increased. On this basis, although the current yield is already juicy, at 9.8%, the future the performance could be even higher.
This puts M&G at the top of the FTSE 100 income stocks, ranked by performance.
Since its listing, share price performance has been weak, with the share value declining by 11%.
But I like the passive income prospect here and have no plans to sell.
