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The insurance and asset management sector is full of popular income stocks like Legal & General. However, although it is often overlooked, IM&G‘s (LSE:MNG) other dividend paying business in the sector currently offers a yield of 6.81%.
That means with just £500, investors can quickly start earning a small but meaningful £34.05 – almost double what a UK savings account offers today.
So is this too good to be true? Or are stock pickers looking for a rare buying opportunity to lock in a good yield?
Why is the yield so high?
The main reason why M&G has such a high yield is tied to its complex structure as a business. After the Prudential spin-off in 2019, the company created two main operating divisions:
- Asset Management – builds and manages a portfolio of investment funds including stocks, bonds, real estate, and infrastructure.
- Life Insurance – manages a large number of life insurance policies and annuities.
Combined, these components generate a lot of income from regular administrative fees and insurance premiums. And the cash generation nature of this type of business is how management has been able to increase profits every year since their IPO nearly seven years ago.
But this is where things get complicated. Because M&G does not sit comfortably within the asset management or life insurance sectors individually, the group must follow some complex accounting rules. And it led to negative numbers, with revenue dipping in and out of the red.
Understandably, this makes it very difficult to understand exactly what is going on under the hood. And for that reason, M&G’s shares have always traded at a relatively cheap price compared to a healthy dividend yield.
Does M&G pay dividends?
Looking at earnings per share, the group’s payout ratio is 166% based on its full-year 2025 results. That means the company appears to be paying out 66% more than it’s generating in profits – an immediate red flag for unsustainability.
But as mentioned before, earnings are deceptive when it comes to M&G. The most important thing is to generate working capital, which represents the amount of real money coming into the business. If you compare shares facing this cash flow, the payout ratio drops to 63%.
In other words, the benefits are actually covered, making today’s high yields appear sustainable, with enough room to move the growth of the premium if money production does not collapse.
So how likely is this to happen?
What you can watch
On the asset management side of the business, M&G remains completely market dependent. A decline in the stock or bond markets has a negative impact on the group’s assets under management, reducing payouts, and accelerating customer churn.
On the life insurance side, flexible rules and lower benefits from administrative actions are starting to put pressure. And the evidence of low life insurance premiums is already starting to seep into its results.
Simply put, this income stock is not risky, and the high yield is a reflection of this.
A strong dividend track record suggests that a profitable income opportunity exists here. Personally, there are very few complex businesses that offer the same high yield that are so tempting. But for diversified investors seeking mixed exposure to the insurance and asset management sectors, M&G may be worth a closer look.
