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With regards to passive earnings, few blue-chip dividend shares can at the moment match asset supervisor M&G (LSE: MNG). The FTSE 100 firm has a dividend yield of 10.4%. I believe the M&G dividend yield may go even larger from right here and plan to hold onto my shares within the firm.
Potential for dividend development
The corporate’s present acknowledged dividend technique is to take care of or improve the annual payout per share. In recent times it has grown the dividend yearly.
Such a technique ought to solely ever be seen as a purpose. In observe, whether or not a dividend grows, shrinks, or stays the identical finally relies upon not solely on what the corporate’s board desires to do but additionally what its monetary efficiency permits it to do.
One factor I like about M&G is that it has confirmed itself able to producing sizeable quantities of extra money. It has additionally proven willingness to make use of a few of that money to fund a beefy dividend.
Can that proceed? I believe the agency’s sturdy model, buyer base within the thousands and thousands unfold throughout a number of markets, and deep experience in its market are all aggressive benefits.
On high of that, I like the truth that the corporate operates in a market that’s each enormous and set to remain that manner for the long run. That mentioned, there may very well be bumps alongside the way in which if a poor financial system leads purchasers to make use of their cash for dwelling bills not funding.
Trying ahead, between now and 2027
So I believe there’s a good probability that we’ll see the M&G dividend develop this 12 months and within the coming couple of years.
However after a rise of below 2% in the latest interim dividend, in addition to final 12 months’s whole annual payout, it appears that evidently the board is aiming to ship development at restricted further monetary price.
On that foundation, I anticipate a number of extra years of dividend per share development within the 1%—2% vary. As a shareholder, I might deal with larger development as a bonus however am not pencilling it in to my issues.
Even at 1.5% annual dividend per share development for the subsequent three years, that implies a potential dividend yield of 10.9% on the present M&G share worth.
Potential storm clouds gathering
That low development price doesn’t trouble me a lot given how excessive the yield already is.
What is extra of a priority, although, is that the expansion price is decrease than in prior years, making me ponder whether administration feels much less assured than earlier than in regards to the enterprise’s potential to maintain larger dividend development charges.
Within the first half of final 12 months, the enterprise generated working capital of virtually half a billion kilos. For a agency with a market capitalisation of £4.6bn, that strikes me as spectacular.
Set towards that, although, that interval additionally noticed web consumer outflows within the core (non-Heritage) enterprise. If purchasers maintain pulling out more cash than they put in, M&G’s profitability may fall – and so may the dividend.
The share worth has fallen 21% in 5 years, so clearly not all traders share my enthusiasm for this earnings share.
Personally, although, I’ve no plans to promote this blue-chip double digit yielder.