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FTSE 100 global investment company IM&G (LSE: MNG) is one of my top stocks aimed at increasing income (money made with little effort). And my intention is to use this to keep reducing my daily work obligations.
What is the current yield and forecast?
In 2023, the company paid a dividend of 19.7%. This gives a yield on the current £2.03 share price of 9.7% — one of the highest yields of any FTSE index. In contrast, the current average payout for the FTSE 100 is just 3.5%, too FTSE 250Only 3.3 percent.
Analysts estimate the dividend will rise to 20.1p by the end of this year, raising the yield to 9.8%. And forecasts are for payouts to be 20.6p in 2025 and 21.3p in 2026. This will give returns of 10.1% and 10.4% respectively.
How much would the current yield make?
£11,000 (average UK savings) invested in M&G shares yielding 9.7% would net me £1,067 in dividend payments this year.
So, even if the yield didn't grow as predicted, this would rise to £10,670 after 10 years. With the same average annual yield of 9.7%, it would jump to £32,010 after 30 years.
While these returns are good, they can be even better by using a traditional investment technique called 'dividend compounding'.
Using this at the same average yield I would have £17,904 in dividend payments after 10 years, not £10,670. On the same basis, I would have £188,576 instead of £32,010 after 30 years!
Add in the initial investment of £11,000 and my M&G shares would be worth £199,576 at that time. This would pay me £19,359 in annual income, or £1,613 every month!
Two other important factors in my choice to share
None of those figures are guaranteed, of course. But high yield is one of the three main qualities I look for in my incoming stocks. Another is that the stock should look good compared to its competitors and its future cash flow.
This reduces the chances that my dividend gains will be wiped out by the loss of share value if I ever sell them.
In the case of M&G, its current price-to-book ratio of 1.3 is the lowest among its competitors, which is a ratio of 3.6.
A discounted cash flow analysis shows it is worth 51% at its current price of £2.03. So the fair value of the shares would be £4.14, although it could be lower or higher, depending on market conditions.
Another quality I look for is that the company has strong earnings growth opportunities. These are where the power increases with shares and shares increase in value over time.
That said, the stock's risk is intense competition from rival firms and low-cost index tracker funds.
However, analysts forecast that M&G's earnings will increase by an impressive 28.5% each year until the end of 2026.
My investment idea
I bought M&G shares for their exceptional yield and extremely low valuation, supported by excellent earnings growth prospects.
Since nothing has changed in any of these ways in my opinion, I will be buying more shares in the near future.
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