M&G(LSE:MNG) was one of FTSE100it’s the biggest dividend stocks to buy lately. Not only have dividend yields exceeded the market average since 2019, but shareholder payouts have increased steadily since the company was split into Prudential five years ago.

What makes M&G such an attractive stock today to me is its double-digit stock. dividend yield. For 2024, only Phoenix Group today offers a greater return on the Footsie.

And as the chart below shows, City analysts expect cash rewards to continue to rise until at least 2026, pushing the yield even further above 10%.

However, before buying a dividend stock, I need to think about how realistic the current forecasts are. I also have to wonder if M&G’s share price will continue to fall, which could offset possible large dividends.

Here is my verdict.

Financial foundations

At first glance, the expected dividends on M&G stock appear somewhat shaky. This valuation is based on the easy-to-calculate dividend coverage ratio. As an investor, I look for a wide margin of safety, namely a reading of 2 times and above.

Unfortunately, this year’s planned dividend is actually higher than estimated earnings. And even though earnings are expected to grow in 2025 and 2026, dividend coverage remains low, at 1.2 times and 1.3 times respectively.

In theory, this puts dividend forecasts at risk if earnings are disappointing. However, M&G has a cash-rich balance sheet to fall back on if profits fall short.

Its Solvency II capital ratio – a key liquidity signal – was 210% in June, double the regulatory requirement and up 7% year-on-year.

Encouragingly for future dividends, M&G’s also recently revised its three-year cash generation target upwards to £2.7 billion from £2.5 billion previously.

Robust outlook

Overall, I think there is a good chance that M&G will meet brokers’ dividend forecasts. Poor dividend coverage has been common in recent years. Yet this has not stopped the distribution of large and growing cash payments.

But does that make the company a potential buy? As I said, its share price fell starting in late March after the company went ex-dividend. Since then, the country has continued to struggle as concerns about the British economy persist.

However, I expect M&G stock to recover strongly over time. As a leading provider of retirement and other investment products, I expect profits to steadily increase as the aging population drives demand for retirement services.

Although it faces strong competition, I believe the FTSE company has the expertise and brand recognition to capitalize on this opportunity.

The verdict

At 196p per share, M&G shares offer these huge dividend yields of over 10%. But that’s not all that excites value seekers. Its price-to-earnings (PEG) ratio for this year is just 0.4. Any value below 1 suggests an undervalued stock, based on expected earnings.

It is not without risk. But, overall, I think M&G is one of the top dividend stocks to consider. And especially at today’s prices.