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M&G dividend cut: MNG payout under pressure if Prudential spinoff sells annuities business

By Jenny McCall

11:00, 18 August 2022

A image of Person holding smartphone with logo of British investment company M&G plc (MG)
MNG is facing a few challenges right now, just three years after it demerged from Prudential - Photo: Shutterstock.

Savings and investment group M&G Plc (MNG) announced on 11 August that it will increase its interim dividend payout. Currently the groups dividend yield is 8.2%, but could the MNG pay-out be cut if the group sells its annuities business?

MNG is facing a few challenges right now, just three years after it demerged from UK insurance group Prudential (PRUl), investors are questioning whether the business should break up again.

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M&G Plc (MNG) share price chart

Is M&G dividend pay-out at risk?

Since its spin-off in October 2019, M&G’s share price has fallen from a high of 254p to its current price of 208p.

M&G, which announced its results for the first six months of the year on 11 August, had some good news and said that it planned to raise its interim dividend pay-out from its 2021 amount of 6.1p per share to 6.2p.

John Foley, Chief Executive, who announced in April he will retire after 22 years said: “The current macro-economic environment is creating uncertainty in the markets in which we operate. However, our diversified sources of earnings and strong shareholder Solvency II coverage ratio protects our ability to invest in the business and, as today's interim dividend of 6.2 pence per share shows, deliver attractive shareholder returns.”

But with the current market situation of rising inflation and interest rate hikes, can MNG maintain and sustain this dividend increase? Coupled with the fact, investors are urging the group to sell its annuities business, is this dividend pay-out under threat?

M&G (MNG) is made up of two main businesses, its asset management division, and its retail arm – which is home to its annuities business.

In an interview with the FT, Andrew Crean, equity analyst at Autonomous Research said: “Shareholders on balance would prefer to see the company get [more] value from its different parts by breaking it up.”

“Investors want to see the [retail arm’s] annuity business sold. This would reduce the size of the whole company and could generate separate bids for the two remaining parts.”

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Prudential (PRUl) share price chart

Positive points for MNG

With that said, perhaps MNG’s dividend pay-out may not be at risk.

The group’s share price has been up 4% this year and is not the only company to have a high dividend yield: its competitor Abrdn (ABDN), formerly Standard Life Aberdeen plc, currently yields 8.8%, while Jupiter fund Mangement (JUP), stands at 15%.  ABDN has also seen its share price fall by 33% and Jupiter’s has plummeted by 55% this year.  

In addition, within the group's half-year results, Assets Under Management (AUM), [within its asset management division] fell from £156.7bn ($189bn) to £153.8b, due to negative market movements. But this was partially offset by net inflows of £1.1bn. Whereas ABDN and Jupiter both had net outflows of client funds for the first half of the year.   

Abrdn (ABDN) share price chart

Negative points

Nevertheless, M&G’s retail and savings arm's operating income dropped from £422m to £378m, driven by a large fall in annuity margin which reflects the difference between assets and liabilities in the annuity portfolio.

Foley said: "The current macro-economic environment is creating uncertainty in the markets in which we operate."

It is for this reason that investors are calling for MNG to sell its annuities business and with Foley set to retire, some investors believe that once a new leader is found, further clarity should be provided on the direction of the business and whether the annuities business should in fact be sold. However, it is still unclear if the dividend pay-out will be cut or at risk, should the MNG business break up. 

Markets in this article

MNG
M&G plc
2.0740 USD
0.024 +1.180%
PRUl
Prudential
7.080 USD
0.105 +1.510%
JUP
Jupiter FM
0.865 USD
0.01 +1.200%
ABDN
Abrdn plc
1.6915 USD
0.015 +0.900%

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