Do you ever look at a FTSE 100 stock and think it really should be your top dividend candidate? I often do, and in this case, I keep coming back to M&G (LSE: MNG) and its forecast dividend yield of a whopping 9.7%.

That would be enough to turn a single year’s Stocks and Shares ISA allowance into £50,000 in 10 years. That’s by dividends alone, investing them in new shares. And not adding a single new penny to the pot for the whole decade.

It also ignores any possible share price gains we might enjoy too. Saying that, since M&G demerged from Prudential in 2019, the price is down 6%. Maybe it wasn’t the best time to come to market, just before the Covid pandemic devastated the financial sector.

Protect from risk

It still reminds us that we can’t be sure of any stock’s progress, and we really need some diversification to protect our money from an individual company or sector crash.

I must also stress that dividends don’t come with a guarantee. Vodafone‘s a good example with an expected 9.9% this year. But we already know that the firm plans to halve it next year.

And that’s why holding a diversified portfolio can make a big safety difference to dividends too, not just share prices.

But let’s look closer at M&G.

What does it do?

M&G is a savings and investments manager. And that’s really why it suffered so much stock market crash pain in 2020, added to by the subsequent rises in inflation. It’s just not a business in great demand when folk have less cash to invest, and are scared of the whole thing anyway.

But a bad spell for a company’s share price can be a great opportunity for private investors to get in cheap. And on the valuation front, a forward price-to-earnings (P/E) ratio of only 7.5 makes the stock look cheap to me.

To balance that though, analysts do expect M&G’s earnings per share (EPS) to dip by 10% in 2025, before getting back to growth in 2026. Even then, in 2026, it would still be a bit below 2024 expectations.

It suggests the P/E could rise to 8.4 next year, before falling back to around 7.5 again.

Risky buy?

That degree of uncertainty in the forecast, which is a bit of a black art anyway, shows what I think could be the main risk. That’s volatility, in response to economic fears that are still with us.

Forecast earnings would only cover those dividends by a squeak too. That means I couldn’t rate it as one of the FTSE 100’s surest.

But the real reason I might buy M&G shares in the near future is a fairly simple one. That P/E’s only around half the Footsie’s long-term average. And I think it leaves a good bit of safety margin.

And a 9.7% dividend yield means a modest cut, should it be needed, could still leave plenty for profit.