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The FTSE 100 started 2023 in good form, blasting through the 8,000 barrier for the first time in February. Sadly, it’s been sliding since then. Year-to-date, it’s down 1.06%, although investors should still be ahead once dividends are included. Over 12 months, the index has climbed 2.6%, which isn’t great.
Cryptocurrency Bitcoin has been more rewarding, as it has partially recovered from last year’s crash. It’s up to 64.12% this year to $27,251. Over one year, it’s up 35.93%.
Which one to buy?
I hold one legacy Bitcoin that I’m clinging onto forever (or until it’s stolen by some hacker). I won’t be buying more though. While I expect the price to climb when wider sentiment picks up, I don’t expect it to transform the world of finance, and shoot up to $500,000, as its zanier advocates claim. I think the price will just bob up and down, up and down, and never pay me a penny in income.
I like buying out-of-favour asset classes and should therefore be piling into buy-to-let. Property prices are falling, mortgage rates are soaring and landlords are fleeing. This means bargains can be found.
There is a reason why landlords are clearing out though. Tax relief has been cut and regulations tightened (with more to come). Why deal with all that for a 5% yield when I can get double the income by simply logging onto my online trading platform and buying shares in wealth manager M&G (LSE: MNG).
The FTSE 100 stock is forecast to yield a staggering 10.6% in 2023. Its shares look like a bargain too, trading at just 10.1 times forward earnings. That yield is almost too high but I’ve read all the company information and I think there’s a fair chance it will prove sustainable.
It’s a brilliant income
M&G’s profits and earnings have been bumpy lately but the dividend per share has climbed steadily from 18.23p in 2020 to 18.3p in 2021 and 19.6p in 2022. Last year, the group handed nearly £1bn to shareholders through dividends and share buy-backs and still has healthy Shareholder Solvency II coverage ratio of 199%.
The board recently said the dividend depends on the “value of available capital in our subsidiaries which is strong”. It expects to generate £2.5bn of operating capital by 2024. By then, analysts reckon the yield will sit at 10.8%. Few buy-to-let rentals will match that while Bitcoin will never yield a penny.
M&G has inevitably been hit by stock market volatility which has reduced the value of net assets under management and hindered new inflows. Its share price has fallen 2.67% over 12 months. That suits me. I think now is a good time to buy, ahead of the recovery rather than afterwards.
I’ve got one eye on its net debt, which is currently around £7.5bn. Its leverage ratio crept up from 28% to 35% in 2022. Management says that shrinking that now is a priority. It’s streamlining the organisation and cutting costs, so I’m not too concerned.
There are always risks to buying shares but I think they’re outstripped by the fantastic rewards of a double-digit yield and potential share price growth too. So forget Bitcoin and buy-to-let. I’ll buy more M&G shares in September.
