When hunting for income, a chunky dividend yield’s usually the most common starting point for many investors. But with the FTSE 100 currently near a record high, the payout for index investors looks a bit underwhelming at just 3%.
Yet for stock pickers, the UK’s flagship index is still home to some genuinely generous yields hiding in plain sight.
Standard Life (LSE:SDLF) is a perfect example. With a 6.5% yield, the stock currently boasts the third largest payout in the entire index. So is this a no-brainer?
Retirement savings at scale
As a quick reminder, Standard Life’s one of the UK’s largest retirement savings and income businesses, managing £317bn of assets on behalf of 12m customers.
It operates across three core areas:
- Workplace pensions – helps employers offer savings schemes to staff.
- Retail – serves individual savers directly with retirement and savings products.
- Annuities – sells individual annuities as well as takes on pension liabilities from corporate schemes through pension risk transfers.
These multiple streams of revenue have proven to be a powerful diversification advantage in recent years. And combined they’ve led to some pretty impressive results.
In 2025, underlying operating profits jumped 15% to £945m. Meanwhile, operating cash generation, which is a more accurate representation of what’s going on under the bonnet, continues to tick upward, comfortably covering the group’s juicy dividend with plenty of cash to spare.
Right now, that excess cash is being directed towards deleveraging the balance sheet. But once the gearing reduction programme progresses, management’s already outlined plans to potentially return even more capital to shareholders.
In other words, even with a 6.5% yield today, dividends could grow even higher in the near future.
What could go wrong?
So far, Standard Life sounds quite promising. But like all investments, there are always risks to consider. And in this case, one of the most prominent is arguably complexity.
Running a life insurance and retirement products business comes with a lot of accounting quirks that can make it difficult to work out what’s really going on under the surface. This complexity’s actually a big reason why the yield’s so high since the markets hold Standard Life shares for a margin of safety.
Operationally, there’s also the threat of competition to consider. Standard Life doesn’t operate in a vacuum, and it has to compete against a fierce backdrop of rivals, many of whom have far deeper pockets.
So what should investors make of all this?
What’s the verdict?
For investors seeking a fat-and-growing dividend yield, Standard Life offers a rare combination: a high starting payout, a cash-generative business model, and a clear path to even more capital being returned to shareholders in the future.
That doesn’t mean the shares are guaranteed to be a winner. But the company does appear to be in a strong starting position. That’s why I think this income stock’s worth mulling. And it’s not the only one…
What income stock do we like better than Standard Life right now?
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Zaven Boyrazian does not hold any positions in the companies mentioned.
