9%+ yield! The M&G dividend forecast has caught my eye

As a shareholder in an asset manager M&G (LSE: MNG), I like the large dividend that the company pays. But sometimes a high dividend yield can be a red flag to cut your card. So, looking at M&G’s dividend forecast, should I continue to hold the stock?

pay increases

In short, I think – and what I want.

I think there is a good chance that M&G will be able to maintain the current payment. In fact, I think we may see a slight increase in the coming years.

The company’s strategy is to maintain or increase payouts every year. But strategy does not guarantee what will actually happen in practice. After all, dividends are uncertain.

Last year, the annual payout increased, albeit by a fraction of a percentage point. In the interim stage of this year, the dividend grew by 1.6% compared to the same point last year. This new direction of travel is in line with the company’s strategy.

M&G share price changes

So, will there be an increase in the full-year rate and in the following years?

It depends on how the business performs. In the interim stage, the M&G recorded a positive note at the same time as raising interim payments. It says that “be cautiously optimistic” about the turnaround in the wholesale asset management division. This part of the business has changed the net client outflow trend. Across the business as a whole, excluding Heritage operation, same picture.

The M&G says it will deliver “Our consistently strong investment performance is set against a challenging period for our sector” for 2022. Full year results including final dividend details will be released on March 9.

Strong performance can help the company achieve good profits and support increased payouts. With a well-known brand, a large customer base and deep City experience, I think asset managers have the building blocks to make it happen.

Possible risks

But it can still be done differently.

Even if the company changed the flow of clients in the first half, it must continue to work hard in the future to maintain a positive flow of clients. The market is competitive. A turbulent stock market may also cause some investors to withdraw their funds. Short-term changes in asset values ​​can also affect reported profits, although I think the long-term outlook remains attractive.

The change explains why the company reported a post-tax profit of £92m last year, not enough to cover the dividend. But as a long-term investor, I remain confident, as the previous few years have seen post-tax profits of more than £1bn each. I realistically expect similar annual earnings for at least the next few years. That could cover the dividend above the current level.

My movement

M&G’s dividend forecast looks good to me. I expect to keep receiving payments equal to the 9.2% yield at the current share price – or more.

Therefore, I will hold the stock forever.