One of the most reliable ways to build long-term wealth through the UK stock market is to hold high-yielding FTSE 100 stocks and reinvest every dividend received.
Britain’s blue-chip index is home to some of the most generous dividend payers in the world, with yields of 5%, 6%, or even above 7% readily available to patient investors.
Wealth manager M&G (LSE: MNG) stands out as a compelling example of how a high-yield stock can compound returns over time through consistent dividend reinvestment.
Investor Harvey Jones added M&G to his SIPP three years ago, initially locking in a striking 10% yield at the time of purchase, which has since generated substantial returns.
Jones originally purchased 3,028 M&G shares from his own capital and has since accumulated an additional 830 shares entirely through reinvested dividends.
That brings his total holding to 3,858 shares, a position built not just through direct investment but through the compounding power of dividend reinvestment working steadily over time.
The M&G share price has risen 25% over the past year and an impressive 60% over the past two years, with all dividends earned on top of that capital growth.
The trailing yield currently sits at 6.3%, and the board has outlined plans to raise shareholder payouts by 2% annually going forward, though that represents a slower pace of growth than previously seen.
In 2025, M&G paid a total dividend of 20.5p per share, and with the planned 2% increase, Jones expects to receive approximately 20.9p per share across his 3,858 shares during 2026.
That translates into a projected passive income of £806 this year, which Jones intends to reinvest entirely, adding an estimated 248 shares at the current price of 325p and lifting his total holding to 4,106 shares.
If M&G follows through with a further 2% dividend increase, Jones anticipates receiving close to £875 in passive income in 2027, representing a steadily rising income stream rather than a static one.
The sustainability of that income stream is supported by M&G’s Solvency II coverage ratio of 242%, which the company describes as giving it an “exceptionally strong capital position.”
That figure sits well above M&G’s own long-term operating target range of 160% to 190%, providing a meaningful buffer against market volatility or a decline in asset values.
M&G does face genuine headwinds, particularly as an active fund manager operating in an environment where low-cost passive index-tracking ETFs continue to attract investor capital away from actively managed products.
A portion of the company’s fee income is tied to the value of assets under management, meaning a sustained stock market downturn could reduce revenues and put pressure on earnings.
Despite those risks, M&G’s forward price-to-earnings ratio of 13.4 suggests the stock is not expensively valued, with a forward yield of 6.52% for 2026 and 6.72% projected for 2028 making it an attractive proposition for income-focused investors.