Passive revenue from dividends generally is a highly effective motivator to speculate. Take my stake in M&G (LSE: MNG) for instance. The asset administration firm has a dividend yield of 9.8%. That implies that, if I spent simply £100 on the shares right now, I’d hopefully earn a £9.80 M&G dividend annually.

Actually, issues may get even higher than that.

The FTSE 100 agency’s coverage is to intention or enhance its dividend annually. The payout per share has grown yearly since M&G was break up off from Prudential in 2019. It has additionally purchased again shares throughout that interval, which means it has been in a position to pay an even bigger dividend per share whereas really spending much less general in making these funds.

However no dividend is ever assured. M&G has a said dividend coverage that doesn’t foresee a minimize, however whether or not it will probably ship that can finally rely on how the enterprise performs in future.

Ongoing strengths – and challenges

I stay upbeat in regards to the outlook for the agency. Certainly, that’s the reason I proceed to carry my shares.

Demand for asset administration is excessive. The sums concerned are substantial, so the chance for charges and commissions is substantial.

M&G’s retail shopper base stretches into the tens of millions. On prime of that, it has institutional shoppers too. Because of its geographic unfold, well-known model and lengthy expertise in asset administration, I believe it will probably set itself aside from rivals. That must be good for enterprise efficiency.

Excluding its Heritage enterprise, the agency noticed web shopper flows of £1.1bn final 12 months. In different phrases, more cash got here in than went out.

It generated nearly £1bn of working capital. I believe that’s spectacular given its market capitalisation of £4.8bn. It additionally issues as a result of producing capital is the bedrock of sustaining the M&G dividend.

That doesn’t imply all is clean crusing. One threat that issues me is shopper outflows within the UK institutional enterprise. That occurred final 12 months and will proceed to happen because of shifts within the outlined profit pension market. A weak economic system resulting in retail clients pulling out funds may additionally damage revenues and income.

Promising dividend outlook

On steadiness although, I stay upbeat in regards to the long-term outlook.

I’m subsequently hopeful that the M&G dividend won’t solely be maintained, however develop. On that foundation, whereas the present yield is already juicy at 9.8%, the potential yield may very well be even greater.

That places M&G within the very prime rank of FTSE 100 revenue shares, ranked by yield.

Since itemizing, the share price efficiency has been weak, with the shares declining in worth by 11%.

However I just like the passive revenue outlook right here and don’t have any plans to promote.