With a 10%+ dividend yield, is this overlooked gem the best FTSE 100 stock to buy now?

Many a FTSE 100 stock offers a good yield now, although that could change as the index rises. This one is on my own ISA candidates list.

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What’s the best FTSE 100 stock I could buy today as a dividend investor? I think I could make a good case for Phoenix Group Holdings (LSE: PHNX).

Phoenix is in the insurance and investment business, specialising in acquiring and managing closed life and pension funds. And it’s mostly life assurance operations, operated by Phoenix Life.

Huge dividend yield

Forecasts currently put the dividend up at a whopping 11% yield, which is the biggest in the FTSE 100. Or, rather, it would be if Vodafone had already slashed its payout as it intends to do next year.

So a big yield is the first plus that I see for Phoenix. But what typically happens to big yields like this comes up next as a minus point. Yes, they usually go the way of Vodafone’s. Will that happen to the Phoenix dividend?

Share price crunch

Phoenix shares have lost almost a third of their value in the past five years. And over a decade, we still see a 7% drop. Confidence in the dividend might not be as strong as it could.

And the weak share price performance is a minus too. It’s no good getting good dividends while seeing our investment capital shrinking.

Still, at least the Phoenix Group share price has held up better than Vodafone’s, which is down 70% in 10 years. So it looks like the market doesn’t see the same erosion of shareholder value at Phoenix. But maybe still some.

Forecasts

Forecasts could cut both ways too. They show the dividend being maintained until at least 2026. But it wouldn’t be anywhere near covered by earnings.

However, with FY 2023 results, the firm raised its dividend and announced a “new progressive and sustainable ordinary dividend policy“.

There weren’t any real details, like where the cash is going to come from. So I’ll assume it’s surplus capital for now… followed by much better earnings in future years?

Assuming the 10%+ dividend yield is here to stay could, I’d say, be more than a bit risky.

Overlooked?

I also suspect investors could remain cautious after watching Aviva in recent years. Aviva needed to reshape itself too, much as Phoenix has. It seems to be working well, but it’s slow progress. And the market might not be satisfied yet.

And that’s pretty much why I see Phoenix Group as largely overlook by the market. It could be deliberate. And the big City players could be waiting a while for the firm to prove itself, and make good on its plans.

They might simply need to see words turn into actions. Or, at least, into bottom-line profit. And that might be wise.

Long-term buy?

I always distrust a big dividend yield, esepcially when I don’t yet see the cash flow needed to keep it going for the next decade, or more.

But I still think the risks are worth taking for Phoenix. And it might even turn out to be one of the best FTSE 100 dividend stocks going into the 2030s.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has positions in Aviva Plc. The Motley Fool UK has recommended Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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