I reckon £250 per month in passive income would make a nice contribution to my retirement plans. I think the best way to target such a sum is by investing in high-dividend shares.
Income from insurance shares can be a bit cyclical. But over the long term, it’s one of my favourite sectors for cash generation. Today, I’m taking a look to see what I’d need from Phoenix Group Holdings (LSE: PHNX) to hit my target.
Phoenix shares have had a volatile year. But after recent gains, we’re still looking at a forecast dividend yield of 8.5% for 2022. Forecasts suggest it could rise as high as 9% by 2024.
I’m not really convinced that will happen. In fact, I expect everything in the financial sector to come under pressure during the recession, which could easily last a couple of years. So against the hope of high dividends, I know I’m taking a risk buying insurance shares.
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My calculations here just provide an illustration of what I could achieve from a consistent 8.5% annual dividend yield. In reality, I expect some dividends to grow strongly in the coming years, and others to fall back.
My long-term income investments include a number of dividend stocks in different sectors, so I’m hopefully sufficiently diversified to cope with any changes.
To get a monthly income of £250 from Phoenix Group, I’d need to build up a stake of around 6,000 shares. That would cost me approximately £35,500 to buy all at once. And I don’t have it to hand right now. In fact, even if I did, I wouldn’t put that much into just one stock anyway.
Building a pot
While I’m in a net investment phase, my strategy is to put a little away each month. And when I have enough for an investment, it goes into one of my favourite dividend stocks.
By my estimates, if I put £250 per month into Phoenix Group Holdings, I could build up the required pot of 6,000 shares in around 8.5 years. Provided I reinvest all my dividends into more shares, that is. As plans go, it doesn’t seem at all unrealistic to me. And I think I could achieve it if I went for the one stock, without too much hardship.
After that, I could just sit back and watch my £250 come rolling in every month. Well, actually, Phoenix Group pays its dividends twice per year, so I’d have to spread it out myself. But I’d say that’s a pleasant enough task to have to do.
Verdict
Will I actually buy Phoenix Group for my passive income portfolio? I alternate my investments between different stocks. I think that’s safer than focusing on building up a bigger holding in a single stock at a time.
My aim is to build up a portfolio of 10 or 12 different income stocks, and the insurance sector is definitely in there. I currently hold Aviva, so I’m exposed to the sector. But I think there’s room for another, and my next choice may well be Phoenix Group.
