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

Ambitious: M&G boss Andrea Rossi

How should investors choose which shares to buy? Some look primarily for growth, delivered by rising share prices. Some seek out income, delivered by generous dividends. Most cast about for a blend of the two. The search can be tricky, particularly now when many companies are struggling to grow and offer lower income than top-ranking savings products.

M&G is different. The shares are trading at £1.91 and it is forecast to pay a dividend of 20.1p this year, putting the stock on a yield of 10.5 per cent. In most cases, such a yield would set alarm bells ringing. City types like their dividends to be fair to middling, with high yields prompting fears that either the dividend or the share price is heading for a fall.

But M&G is a main constituent of the FTSE 100 index of Britain’s largest listed companies. It is valued at almost £4.5 billion and chief executive Andrea Rossi is committed to increasing the dividend and driving profits growth. Brokers believe he can do both. Half-Swedish, half-Italian, Rossi was educated in France and has spent his career working around the world, collecting contacts along the way. Having taken the helm last October, he is already making a mark on the business.

M&G is, at heart, a savings and investments business, building on decades of experience to help customers earn 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, launching the UK’s first unit trust in 1931. In 1999, M&G was acquired by Prudential but four years ago, the group split into two. Prudential became an emerging markets-focused insurance firm. M&G was left as an international asset management business with a UK savings division and a life assurance arm.

The demerger was underwhelming. From a starting price of £2.20 in October 2019, M&G shares had more than halved by March 2020 and, even though they have since recovered some composure, remain below their original price.

That should change. Rossi is energetic, ambitious and determined to ensure that M&G capitalises on its heritage and investment talents. The company has more than £300 billion under management, spanning every type of asset, from international bonds and equities to African micro-loans to Northern Gritstone, formed by the Universities of Leeds, Manchester and Sheffield to turn clever ideas into commercial businesses.

Traditionally focused on working with large institutional investors, M&G is keen to develop its wealth division, which offers products to individual savers, via financial advisers. Rossi is investing in technology to make this business work better and the firm also benefits from an expertise in bonds, sustainable investments and multi-asset products, all of which are in vogue right now.

M&G owns a sizeable life assurance and annuity subsidiary too. This has been closed to new business for several years but is about to reopen its doors.

Brokers expect the group to deliver robust growth under Rossi’s stewardship, with operating profits rising from £616 million this year to £729 million by 2026. Dividends should increase to 21.2p over the same time frame.

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

Traded on: Main market Ticker: MNG Contact: mandg.com or 020 7626 4588