Whenever I spot a FTSE 100 income stock with a huge yield, I always ask the same question. Can it really sustain those meaty shareholder payouts?
At least, I should. High levels of passive income look wonderful, but they can also prove fragile. Quite often, a soaring yield reflects a falling share price. That usually happens when profits come under pressure or investors lose confidence in the outlook.
The danger comes when the payout starts to outstrip the earnings. So how does that apply to insurer Standard Life (LSE: SDLF), which recently rebranded from Phoenix Life and currently yields a mighty 7.3%?
Can it afford that sky-high yield?
I’m hungry to know the answer because I hold the shares myself. And so far, they’ve treated me very well. I added the stock to my SIPP two years ago and it’s climbed 54% since then. It looks like I timed my purchase nicely. Over five years though, it’s only climbed a meagre 5%. At least investors will have got bags of income. At times, the stock has yielded 10%.
Standard Life has a key strength. Dividend consistency. It’s increased shareholder payouts every year for the last decade. Investors love to see that. They buy this stock primarily for income, because nobody realistically expects explosive share price growth. In return, management has committed to a progressive dividend policy, lifting payouts steadily alongside earnings and maintaining them through tougher periods.
To keep delivering those rewards, Phoenix needs dependable cash generation. Thankfully, it has that too. Free cash flow climbed 13% in 2025 to £396m. It was £350m in both 2023 and 2024. Operating cash generation rose 5% to £1.47bn. The Solvency II ratio is 176%. It could be higher.
Adjusted operating profits have been reasonably solid:
- 2025 – £945m
- 2024 – £825m
- 2023 – £1.23bn
- 2022 – £544m
- 2021 – £617m
The sharp 2024 drop largely reflected industry-wide accounting changes rather than deteriorating trading. Under the previous accounting standard, 2024 profits would have risen modestly to around £1.24bn.
Is this one to consider?
In 2025, adjusted operating profit rose 15%, beating analyst expectations of roughly £937m. This also worries me. Current dividend cover is just 1.3. Ideally, I’d like to see that covered twice. Management remains committed to progressive payouts. However, it says future dividend growth will slow to 2% annually. Over the previous decade, the average annual increase was 3.18%. So things could be getting stretched.
I wouldn’t want to see dividend growth weaken any further. If it falls, the share price could quickly follow. Standard Life built its business on buying up legacy closed pension funds. Over time, those cash flows will run off and need replacing. It’s shifting into new growth areas such as bulk annuities, but there’s a lot of competition in that space. The group also manages around £300bn of assets, which leaves earnings exposed to a major market downturn.
No dividend ever comes fully guaranteed, including this one. Even so, I still think this dividend star is one to consider. I’d happily buy more myself, but I already hold an awful lot of dividend-paying FTSE 100 financials. And there’s a very good reason for that.
Should you invest £5,000 in Standard Life right now?
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Harvey Jones owns shares in Standard Life.
