M&G committed to dividend as yield nears 10%

The FTSE 100 company is confident enough to keep the current generous dividend policy in an increasingly competitive industry. Our head of markets also analyses latest action on global exchanges.

It has been an unsurprisingly delicate time for the likes of M&G Ordinary Shares (LSE:MNG) of late, amid market volatility and an increasingly cost-conscious consumer.

For this quarter, slightly improving markets have somewhat masked a continuing outflow of clients, which the company is keen to address. At the same time, the group plans to ratchet up its asset management and wealth units to the stage where they account for over half of profits. M&G hopes this aim will be propelled by its wealth platform, where there are further signs of progress. More broadly, there have been institutional mandate wins in the Netherlands and Switzerland which have lessened expected outflows following the mini-Budget crisis.

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The company’s financial position is robust, with the solvency coverage ratio holding firm at around 200% and partly enabling a whopping dividend yield of 9.6%, which is a blatant attraction for income-seeking investors.

“We remain committed to our disciplined capital management framework and policy of stable or increasing dividends per share," the firm said.

M&G is also aiming to trigger cost savings through a transformation which has already involved a voluntary redundancy programme and which continues to consider freeing up surplus office space.

The sector in which M&G operates is increasingly competitive and the group has its work cut out to achieve its golden aim of increasing funds under management. This remains the hub of the current challenge, and the shares have had something of a bumpy ride given the additional pressures which market volatility have brought.

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Despite an increase of 11% over the last six months, the shares are down by 6% over the last year, as compared to a marginal gain of 0.4% for the wider FTSE100. The market consensus of the shares as a 'hold', albeit a strong one, suggests a split verdict on immediate prospects.

Market snapshot

The high-flying and technology exposed S&P500 and Nasdaq indices took a pause for breath overnight, as the more traditional Dow Jones made marginal gains. Energy and bank stocks tended to be the focus of investor attention, both potentially picking up valuation bargains given the recent weakness of the oil price and turbulence within the banking sector.

The so-called fear gauge which is the CBOE Volatility Index also dropped to levels not seen before the outbreak of the pandemic, seemingly disregarding any potential interest rate, inflationary or recessionary overhangs. The moves leave each of the main indices in positive territory in the year to date, with the Dow having added 1.6%, the S&P500 11% and the Nasdaq 25%.

Any positive sentiment did not reach Asia, however. Local markets came under some pressure following an unexpected interest rate hike from Canada which added to the previous Australian surprise, and which refocused concerns over the Federal Reserve’s next move, alongside the length of time which rates could remain elevated. The news also followed previously released weak import and export data from China, which has somewhat kept a lid on sentiment for the region as a whole.

UK markets opened in similarly reflective mood, with the interest rate increases from elsewhere providing an unwelcome reminder that the Bank of England is more than likely to follow suit, heaping further pressure on an economy which is already struggling to find meaningful growth. The gains were marginal in early exchanges, with every possibility of similarly sideways moves until such time as the US inflation number and Fed interest rate decision are revealed next week.

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Early features on the main board were Vodafone Group (LSE:VOD), which gave up earlier gains following the expected announcement on a merger of British operations with Three owner Hutchison, while Sainsbury (J) (LSE:SBRY) and WPP (LSE:WPP) were each marked lower having gone ex-dividend today.

There was some tentative buying interest across the miners following a broker upgrade to Rio Tinto Registered Shares (LSE:RIO), leaving the FTSE 100 ahead by 2.4% in the year to date and poised to react to important global developments over the next few trading days.