Buying 1,852 shares in this ultra-high yield FTSE 100 income stock would give me £1k a year

Harvey Jones is keen to load up on this blue-chip income stock that pays the highest yield on the FTSE 100. He’s even set himself a target.

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The last FTSE 100 income stock I added to my portfolio was the one that pays the biggest yield of all. Step forward, Phoenix Group Holdings (LSE: PHNX), the insurance conglomerate best known to investors for its double-digit yield.

I bought 218 Phoenix shares on 31 January, followed by another 297 on 4 March. In total, they cost me £2,500. I also picked up another 27 shares, when I invested my first dividend on 24 May, worth £137. That’s a relatively modest total, but I’m not done yet. I’m considering adding to my tally, but I have one obvious concern. Is that yield for real?

I wouldn’t have bought it if I didn’t think so, but it still worries me. Double-digit yields are vulnerable, as any Vodafone investor can tell you.

Can I trust that dividend?

If investors were convinced they’d get 10% a year forever, or at least the next decade, they’d pile in, wouldn’t they? But as ever with dividends, there are no guarantees. Yet the Phoenix per share dividend growth has been pretty solid, as my table shows.


20192020202120222023
Dividend46.8p47.5p48.9p50.8p52.7p
Yield6.2%6.8%7.5%8.3%9.8%

It has increased its dividend over the last four years by 0.7p, 1.4p, 1.9p, and 1.85p. Markets forecast another 1.35p uplift in 2024 to 54p. That doesn’t look like a company that is worried about funding shareholder payouts.

My table also shows that yield has steadily climbed, courtesy of the falling Phoenix share price. It has dropped 14.7% over the last year, and 25% over five years. That compares to FTSE 100 growth of 9.1% and 16.2% respectively. So those high dividends come at a price.

Personally, I think markets have been harsh on Phoenix. When it published full-year results on 22 March, the share price jumped 8.4% from 488.2p to 529.2p and I felt vindicated. It has since retreated to 502p.

High and also rising

I’m baffled. The 2023 numbers were good, with total cash generation beating the group’s £1.8bn target to hit £2bn. That will help fund the dividend yet still the share price flounders.

I suspect that is partly down to wider market conditions. A lot of FTSE 100 high yielders have sold off lately, as interest rate cut hopes recede. That downwards trend could reverse when rates do finally fall, slashing yields on cash and bonds. At that point, Phoenix could fly. Unless it’s a value trap, that is.

Today, my 542 shares are worth £2,720. If analysts are correct and the 2024 dividend per share is 54p, that would give me income of £292.68.

If I wanted to up that to a somewhat more meaty £1,000 a year, I’d need to buy another 1,310 shares, lifting my total to 1,852. Today, that would cost me £6,576. I don’t have that much to hand today so I will buy Phoenix in dribs and drabs, taking advantage of any share price dip. I’ll get there, with luck before the share price kicks on, assuming it ever does. If it doesn’t, at least I’ll have the income.

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.

Harvey Jones has positions in Phoenix Group 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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