In relation to passive earnings investing, excessive dividend yields can definitely catch the attention of income-hungry buyers. Man Group (LSE:EMG), a worldwide funding administration agency, is at present providing a juicy 6% dividend yield. However is that this FTSE 250 firm a no brainer? Let’s dive into the small print and see if this chance is nearly as good because it appears on the floor.

A monetary big

First, let’s speak about what the agency does. As one of many world’s largest various funding managers, the corporate provides a spread of quantitative and discretionary funding methods. With a market cap of £2.5bn and over £108bn in belongings beneath administration, that is no small fry within the monetary world.

Now, onto the numbers that matter. Curiously, a reduced money circulate (DCF) calculation suggests the present price is about 64.5% under an estimate of honest worth. Though such an estimate is way from assured, it’s a reasonably large indicator that there’s lots of worth right here if administration could make a hit of the following few years. Furthermore, annual earnings are forecast to develop by 15.62% for the following three years.

To me, trying on the competitors is at all times essential when seeing an organization or sector buying and selling to date under what the numbers recommend is a good valuation. The corporate’s price-to-earnings (P/E) ratio stands at a modest 9.9 instances, which is comparatively low in comparison with the typical of opponents, which stands at 17.6 instances.

The dividend

However what about that tempting 6% dividend yield? It’s definitely engaging in right this moment’s unsure financial surroundings. Nevertheless, I at all times really feel that it’s essential to look past the headline quantity.

I’d say it’s extra essential to notice the pretty unstable dividend monitor file up to now. That is one thing income-focused buyers ought to typically take into accout, as consistency is commonly prized in terms of dividend funds. With the dividend forecast to rise as excessive as 7.5% by 2026, any change in technique might disappoint the market.

Loads of threat

The enterprise operates in a notoriously risky trade, the place efficiency can swing wildly based mostly on market circumstances. The corporate’s income and earnings have proven vital fluctuations in recent times, which might impression dividend stability. Furthermore, the agency’s fortunes are intently tied to its capacity to draw and retain investor capital — a difficult activity in an more and more aggressive panorama.

The agency’s international footprint, whereas offering diversification, additionally exposes it to foreign money fluctuations and assorted regulatory environments. Moreover, as with all funding agency, there’s at all times the danger of reputational harm from poor fund efficiency or potential scandals, which might result in buyers transferring elsewhere.

Not for me

So, is that this a passive earnings no-brainer? Nicely, like most issues, it’s not that straightforward. As many sectors out there have soared within the final 12 months, the shares have fallen by 1.1%.

Clearly, the corporate comes with complexities that demand cautious consideration. So this isn’t fairly the ‘set it and forget it’ passive earnings stream that some buyers could be searching for. I believe there are higher alternatives on the market, so I gained’t be investing at current.