10% income a year! Here’s why I couldn’t resist the FTSE 100’s highest yield

At FTSE 100 packed full of top dividend stocks that offer incredible deals and I can’t resist.

Last week I took a chance, and bought the company that gave me the biggest deal of all. By doing so, I have earned an income of more than 11% per year, but I also have a risk. Is this wise?

My double digit returns from asset managers M&G (LSE: MNG). The stock has been high on my shopping list for a while, and I finally took the plunge last Tuesday.

Juicy income stream

High dividends are a thing of fragile beauty. They are not always built to last. All too often, they are a sign of a company in trouble.

Yield is calculated by dividing the dividend per share by the share price. So if the dividend is 5p and the stock is trading at £1, the yield is 5%. If the stock plummets to 50p, the yield automatically shoots up to 10%. If the stock price falls due to a decrease in cash flow, the results will not last long.

M&G offers a very high yield even before the recent FTSE 100 sell-off. It dipped 8% in the day before I took the plunge, which I also hard to resist. Combined with that 11% plus yield, it seems like a brilliant entry point.

Measured over 12 months, M&G shares are down 18.89%. In fact, he has been working since the company was taken down Prudential in June 2019. As I said: my purchase is not without risk.

But I am impressed by management’s commitment to rewarding shareholders. The board will generate nearly £1bn in 2022, through a £465m dividend and £503m share buyback.

Management shows progress

The dividend per share has risen steadily, from 18.23p in 2020 to 18.30p in 2021, and 19.60p in 2022. Last year’s 7.1% increase looks all the more impressive given that, in that time, the stock has returned a dizzying 9.2%. .

As usual, there is no guarantee that the council can maintain its generosity. That requires more than will be good, but also cold hard cash. Last year, capital generation fell from £1.87bn in 2021 to a loss of £397m. That would normally scare me, but this year is more promising, with M&G looking to generate £2.5bn this year. I hope it works.

The banking crisis is a concern, as is the fear of an ongoing recession. If either leads to a stock market crash, the value of M&G’s assets under management and customer flow will fall, as will annual management fees. The dividend might be worth it and I feel like a chump. To assure you, I remind you that the Solvency II coverage ratio of shareholders remains solid at 199%.

Even if the dividend is cut in half, the yield will remain around 5%, which is not too bad. I took a risk, but I think it’s a risk worth taking, especially since I plan to continue M&G for years, if not decades. With luck, your income will still grow when you retire and need it.