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But IMB are in a downward trajectory with a dividend cut forecast. It would be rather pessimistic to expect M&G to be in that position in a couple of years. M&G could have announced an expected dividend at launch of whatever they wanted, within reason, so you'd hope they chose an appropriate and sustainable one, given they had plenty of time to think about it and plan. They have experienced management and will be well aware of all the issues affecting profitability going forward, yet have confidently set themselves a challenging medium term target.
But you are right of course, all depends on results, ultimately, and the first ones will set the tone.
There is another concern about the sustainability of the dividend in an industry that is facing into significant fee reductions.
The dividend is of zero worth if the SP does not rise again for the next dividend (IMB as example). Growth promised by management is required.....then the SP will rise and the Yield fall.
Or indeed when the fat lady stops singing !
I have been reflecting on barchid's difficulty in believing the expected 8% yield because it seems "too good to be true", which I think may be a widely held feeling. Certainly, it is hard to imagine it as a long term rate, but (hopefully) only because the share price should rise to reduce it, rather than due to a lack of ability to pay it.
But my point about a likely surge in March (was not just because of a sudden "eureka!" moment as the dividend date approaches, with the associated announcement and publicity. It is because the first payout, including the special dividend, is even more rewarding than the yield in real terms. Rather than a yield, which represents an annual return, the expected May payment is only 6 months away, and the ex-div date even less than that. Based on the last two years of Pru dividends the ex-div date is likely to be 26th March, and the payment date 15th May 2020. At the current buy price of £2.286 the expected dividends of 15.77p are currently worth about 6.9% of the purchase price, but on an annualised basis that works out as over 14% using the payment date, and 20% using the ex-div date. As time to payment shortens, those rates of return will gradually increase unless the price rises.
Try telling that to barchid though: he won't believe it till the fat lady sings.
Roland Head for the Motley Fool on M&G:
"The market isn’t yet convinced, and M&G shares currently offer a forecast yield of 8.5% for 2020.
I think this stock would be fairly valued with a yield of between 6.5% and 7%, in line with rivals."
https://www.fool.co.uk/investing/2019/11/08/3-ftse-100-dividend-stocks-with-yields-over-5-id-buy-in-november/
Mng is now trading with a significantly higher yield than competitors whose shares have all risen 10-15% recently. SLA 7.2% Aviva 6.8% Lgen 5.8% jup 4.8% the shares are due a rerating.
In the future SP progression may depend on the growth promised by management. The 3yr capital plan will demonstrate this.....I anticipate peak expectations will be in 2-3 years time.....I intend to enjoy that ride and reinvest dividends in the meantime.
Quite probably closed, though I still find the yield enormous for a well capitalised company.
Ah, I see what you mean barchid, and I salute your cautious approach, but surely this statement from the prospectus definitively rules out your alternative reading:
"The expected 2019 ordinary dividend is consistent with the Board’s dividend policy, as described above, being
broadly two thirds of the amount that the Board would have anticipated paying in respect of
2019 on a standalone basis under its new dividend policy."
So they are explicitly acknowledging a notional interim of about one third of the total, with the 11.92p only being two thirds.
Case closed?
BBD
I am not sure that I read the document correctly, although I must admit it is somewhat unclear, the key point to me is in the documents;
8.2 Dividend policy for the demerging group
The M&G directors currently intend to declare a dividend for 2019 of around £310mill ...... equivalent to about 11.92p per share.
Note it says dividend for 2019, NOT the final divi for 2019.
It then goes on to say how the interim will be proportionate of a third of the total pay out.
Where I said "according to the prospectus" I was using the 11.92p figure stated in the prospectus to arrive at 5.4%.
If your reading of the prospectus is accurate, as a holder I am delighted but intuitively I always believe that if it looks too good to be true it probably is.
8% does sound very good, hence my scepticism
Good question barchid, and I think it illustrates the kind of confusion surrounding the dividend.
Jatw is 100% correct, but let's expand the explanation for clarity, and explore my assumptions to see if they are unreasonable.
Firstly, obviously the special dividend plays no part whatsoever in calculating the yield.
The expected ordinary dividend of 11.92p constitutes only the final part of the total dividend, there was also an interim payment, as Jatw pointed out, but it is effectively hidden within the Prudential interim. So we need a way to extract the portion which can be attributed to M&G. Historically, the interim is roughly half of the previous year's final dividend, and this policy is confirmed as ongoing in the M&G prospectus (section 3.1 (F)), so we can use the expected final dividend as a rough guide to what the interim would have been. It's not completely accurate, as the interim is normally derived from the previous years final dividend, rather than the future one, but it's near enough for a rough figure.
Therefore, the total dividend can be modelled using the expected final dividend of 11.92p, plus an extrapolated interim dividend of 5.96p, giving a rough total figure of 17.88p. Dividing this by the share price gives a yield of around 8%. A similar figure has been quoted by financial analysts, so we can be fairly confident of it's veracity.
Moving on, we have to take issue with your statement that "the yield comes down, according to the prospectus, about 5.4%." That claim seems to be completely inaccurate. I can find no reference to this in the prospectus.
The prospectus actually states that the Directors expect "dividends to be stable or increasing in absolute terms over time" (section 3.1 (F(i))).
So that surely means it is expected to go up, not come down?
Furthermore, the Questor article quotes Deutsche bank as writing that "90% of the company's dividend was covered for the next three years by some solid sources of income - the with-profits book, and annuities, which total £131bn of 'heritage money'".
Surely that also suggests that an immediate dividend retraction is unlikely?
Finally, I wholeheartedly agree with your rallying cry "don't believe everything you read", so feel free to point out my inevitable errors, and let's find the truth.
Be aware that dividends are not guaranteed, and the figures given here are only estimates or "expected" values.
The M&G prospectus can be found here: https://global.mandg.com/investors
BBD is correct in the approximation of the current yield - it is high 7% near 8%
The special dividend is as you say not relevant, The final dividend is about your 5.4% yield however you need to include the expected interim dividend in the annual yield.
DTM
BlahBlah
Where do you get 8% from?
I suspect that you are assuming that the "special divi" will be paid each year, but believe me, the clue is in the word "special".
Then I think you will find that the yield comes down, according to the prospectus, about 5.4%.
Still good but don't believe everything you read, most of it is scribbled by inexperienced 23 year olds writing for a newspaper on the minimum wage.
What do they know?
DYOR please.
" If a circa 5% yield becomes an annual fixture, it will probably top 300p."
Not sure why you are focusing on a 5% yield? By my calculation the Share price would need to increase to about 360p to bring the yield down from it's current 8% to a mere 5%.
Questor, in the Telegraph last week, highlighted the defensive qualities of M&G, suggesting it is a better bet than Aviva, and well placed to survive a downturn - Deutsche Bank estimated that in the event of a 25% fall in stock markets, M&G's capital generation would only suffer an 8% hit. That's important, because M&G have set themselves the target of cumulative total capital generation of £2.2bn by the end of 2022, and the achievement of this medium-term target would convincingly demonstrate that the dividend policy is solid and reliable. If the capital outflows of the first half are overcome in the second half, as expected, then the M&G story starts to become quite compelling. If all goes well, March results could see a surge in the share price, imo.
https://www.lse.co.uk/news/sunday-share-tips-shield-therapeutics-m-amp-g-fewxihclg9136k3.html
(second story)
Political betting is not for me.
The comments were made only from an investment perspective re MNG
as a UK domestically focussed business.
As mentioned it's a guesstimate, prescience alludes me unfortunately.
If you believe Boris will get a clear majority then I suggest a visit to the bookies.
My impression is that the Tories are making a mess of it and Farage is going to help cause 'no overall majority'.
To be honest any party getting a clear majority is scary.
This is not a political point...a Tory overall majority
should see a nice bounce in UK focused stocks.
That's all other things being equal, as a lot also
depends on how wider equity markets trade.
Another hung parliament is not what markets want to see.
It looks like a comfortable Tory majority government at this point,
a lot should be clearer over the next two weeks.
Polls moved markedly during the last campaign.
I don't see that happening again, at least not to that extent,
however only my guesstimate.
Andyagogo not sensing that the general election run up is impacting this share, see it as most relevant to the banks. Longer term my opinion is that whilst MNG are well administered their funds leave something to be desired in terms of performance, the Pru are the better bet. IMHO
Need to get a general election out of the way first.
Longer term they will need to grow the asset management book
to offset the run off in the closed book - that won't be easy
with growing dominance of passive investment.
And is why I would expect a fat yield to reman as compensation.
I think as we get closer to the spring (and the divi) it will climb into the mid 200s. If a circa 5% yield becomes an annual fixture, it will probably top 300p.
I agree jimjam, I suspect there may be some price action if and when the dividend is confirmed in March, as more people realise the considerable short term reward. The "progressive" dividend policy probably means an annual increase of about 5% if profits allow, so we can provisionally expect another good payout next year of something like 6.26p interim and 12.52p final (my estimates).
Be aware that none of this is guaranteed though , and profits attributed to M&G were down in H1 - as a new entity M&g need to prove they are capable of sustaining this dividend rate, but if they can, the opening share price of 220p looks conservative.
Would agree fwiw.
Expect plenty of volatility here if SLA or PHNX
provide any guide.
Could be good for income and growth with a bit of luck. One to hang on or buy more of it gets any cheaper. Only in my opinion of course..
BlahBlahDoh seeing the figures for divs just the basic without the special makes it a very good yield and warrants a lift in the sp, between now and payment. At its current price it is attractive to investors looking for income IMO
many thanks
Expected dividends are an Ordinary dividend of 11.92p and a special demerger dividend of 3.85p, giving a total of 15.77p
This information is from the Investor and Analyst presentation 26 September 2019 , available on the Prudential website