MIDAS SHARE TIPS: Savings giant M&G offers long-term growth

How should investors choose which stocks to buy? Some seek primarily growth, generated by rising stock prices. Some seek income, earned through generous dividends. Most look for a combination of the two. The search can be tricky, especially now that many companies are struggling to grow and offer lower income than top-tier savings products.

M&G is different. The shares are trading at £1.91 and are expected to pay a dividend of 20.1 pence this year, giving the shares a 10.5 per cent yield. In most cases, such performance would ring alarm bells. City types like their dividends to be fair or medium, and high yields prompt fears that the dividend or stock price is headed for a decline.

But M&G is a major component of the FTSE 100 index of Britain’s largest listed companies. It is valued at nearly £4.5bn and chief executive Andrea Rossi is committed to raising the dividend and driving earnings growth. Brokers believe you can do both. Half Swedish, half Italian, Rossi was educated in France and has spent his career working all over the world, collecting contacts along the way. After taking the helm last October, he is already making his mark in the business.

M&G is, at its core, a savings and investment company, drawing on decades of experience to help clients achieve attractive, long-term returns on their money. Founded in 1900 to finance urban public transport, the Municipal and General Securities Company evolved into an investment firm and launched the UK’s first unit fund in 1931. In 1999, Prudential acquired M&G, but four years ago, the group became divided in two. Prudential became an insurance company focused on emerging markets. M&G was left as an international asset management company with a UK savings division and a life insurance division.

The spinoff was disappointing. From an initial price of £2.20 in October 2019, M&G shares had more than halved by March 2020 and, although they have since regained some composure, remain below their original price.

That should change. Rossi is energetic, ambitious and determined to ensure that M&G leverages his heritage and his investing talent. The company manages more than £300bn, spanning everything from global equities and bonds to African microloans and Northern Gritstone, formed by the Universities of Leeds, Manchester and Sheffield to turn smart ideas into commercial businesses.

Traditionally focused on working with large institutional investors, M&G is interested in developing its wealth division, which offers products to individual savers, through financial advisers. Rossi is investing in technology to make this business work better, and the company also benefits from his expertise in bonds, sustainable investing and multi-asset products, all of which are all the rage right now.

M&G also owns a large life insurance and annuity subsidiary. It has been closed to new business for several years but is about to reopen.

Brokers expect the group to deliver solid growth under Rossi, with operating profit rising from £616m this year to £729m in 2026. Dividends should rise to 21.2p over the same period.

Midas Verdict: The FTSE 100 index of Britain’s largest listed companies is forecast to generate annual revenue of 4.1 percent this year. At £1.91, M&G shares offer a return of more than 10 per cent and the prospect of long-term growth. Buy and hold.

Traded in: main market Heart: MNG Contact: mandg.com or 020 7626 4588