Stock market

My Favorite Second Income Stock Just Crashed 15% – Should I Buy More?

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I have spent the last year buying more produce. FTSE 100 Shares that I hope will pay me a sizeable second income in retirement.

The FTSE 100 is heading for new all-time highs, with most gaining 15% or 20% in just six to nine months. With one exception. Wealth Manager M&G (LSE: MNG).

I bought my first share last July, and when the shares showed signs of life, I bought two more in November. This month I also made my first profit. This was my biggest hold and a personal favorite. for a while.

Struggling income share

M&G shares have underperformed since the company was spun off from the Asia-focused insurer. Prudential In 2019 I like to buy stocks when they are out of favor. This gives me a lower cost of entry and lower risk. At least in theory.

Also, when a company’s share price falls, its dividend yield rises by default. M&G was paying an income of over 9% a year when I bought it. I read his company reports and decided that the dividend is sustainable.

I’m not bothered by the fact that M&G faces a £2.5bn pre-tax loss in 2022, reversing last year’s £788m profit. Assets under management fell 7.6% to £342bn, down from £370bn.

The board said it was. “A challenging year driven by volatility in markets driven by adverse market movements”. I was reassured by the news that it is still on track to generate £2.5bn of capital by 2024, while the board yesterday increased the dividend by 7.1% from 18.3p to 19.6p.

I decided that the markets were missing a trick, and this was my chance to enter at the bottom, with the intention of holding the shares for years and years, giving those profits time to compound and grow.

Great production, poor growth

That’s still the plan, but I’ve been surprised and disappointed by M&G’s recent upward trend, and dips while the FTSE 100 rises.

M&G’s share price is down 14.65% over the past month, while the FTSE 100 as a whole has risen 3.26%. Over 12 months, the stock has gained just 2.24%. This is marginally higher than the FTSE 100’s 1.57% but not overwhelming.

So did the M&G deliver disappointing results? Quite the opposite. On 21 March, it reported a 28% rise in pre-tax adjusted operating profit to £797m, beating consensus forecasts of £750m. Total client flow, adjusted profitability and operating capital generation all increased.

Despite this the board gave investors only a small dividend increase from 19.6p to 19.7p, an increase of a tenth of a penny. Given the previous yield of around 10%, I’m not complaining. The markets seem to have a different view.

M&G looks a bit like a value trap, whose shares can never rise. Trading at 16.07 times earnings, they look fully valued. Still, I’m happy with the production and overall direction of the company. I’d invest more, except it’s one of my biggest portfolio holdings, so I’ll just bide my time and bide my time.

My next dividend of 13.2p per share is due on 9 May. I look forward to reinvesting this to pick up some more M&G shares (and a bit more other income too).


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