Phoenix Group Holding (LSE: PHNX) is now a standout FTSE 100 stock for investors seeking high levels of passive income.
Today, it has a stunning trailing dividend yield of 8.4%. Better still, the Phoenix share price has jumped 30% in the last year. That lifts the total 12-month return towards 40%. Not bad for what I once saw as a sleepy old-school blue-chip.
I hold Phoenix but don’t expect it to rise like that every year. It looks decent value with a price-to-earnings ratio of 14.1, but Phoenix is more about income than growth. And what an income.
The board is pursuing a “progressive and sustainable dividend policy”, which it says is backed by a solid balance sheet and dependable cash flows.
Payouts are dazzling
The dividend looks reasonably solid. Forecasts suggest yields of 8.68% in 2025 and 8.93% in 2026. That’s more than double what cash savings pay. Of course, savings are safe. Dividends aren’t.
Despite its strong run, the share price still trades around where it did 10 years ago. That’s a worry, although investors would have got plenty of dividends to compensate.
Phoenix aims to generate £1.1bn of excess cash by 2026. Some of that will go to paying down debt, but the rest should keep fuelling dividends.
The board’s exploring new areas of revenue, such as bulk annuities and workplace pensions. It needs to do so to keep the cash flowing, and the dividend supported.
Risks are still out there
There are risks. The annuity market’s crowded. Insurance is a mature, crowded business. And while cash yields are falling, they still offer more certainty than stocks. That could hold back income plays like this.
Markets remain volatile too. Any wobble could hit the £280bn of assets Phoenix manages.
Still, the income’s the thing. I caught myself wondering, what if someone went all in? It would break every rule of diversification, but what would it take to make £10,000 a year?
Given this year’s forecast dividend of 56p a share, up 3.7% on last year, they’d need 17,857 Phoenix shares. At 644p each, that would cost around £115,000. It’s an awful lot to put into just one stock. But it would also deliver a whole heap of income.
One for the long haul
Here’s something to cool my ardour. Merrill Lynch has just downgraded Phoenix from Buy to Neutral, citing strong recent gains. It still sees the yield as appealing, but warns the gap over bonds is narrowing. Shareholders’ equity’s set to fall until 2027, which could unsettle some and hit demand for the stock, and its share price.
There’s an old saying that diversification is the only free lunch in investing. So we probably shouldn’t pass on that. Also, for my own portfolio, feasting purely on Phoenix would mean shunning a tray of tasty FTSE 100 stocks that I’d also like to own. So I’ll restrain myself.
Never mind. I do think it’s worth investors considering though. As for me, retirement’s more than 10 years away, and I’ll just keep reinvesting every Phoenix dividend I receive. I doubt I’ll ever hold enough stock to earn £10,000 a year in dividends. But with luck, Phoenix should still give me an awful lot of passive income over time.
