Retirement is still a decade away but I’m busy building a portfolio of FTSE 100 stocks to generate a high and rising second income for when I get there.
On Friday, I topped up my stake in the highest yielder on the entire index, insurer Phoenix Group Holdings (LSE: PHNX). There’s a pretty good chance I’ll buy more of it, soon.
I’m sticking my neck out by calling this a no-brainer buy for passive income. Yet that’s not just talk. I’m putting my money on the line, too.
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Top dividend stock
The obvious question is whether that mighty dividend is sustainable. Its trailing yield is currently 9.75%. Although a quick search suggests that Vodafone yields more at 10.93%, the telecoms group will cut shareholder payouts in half next year. Phoenix almost certainly won’t. In fact, it look set to increase them.
An ultra-high yield like this is clearly vulnerable, but the board seems positive. Last year, Phoenix generated £2bn of cash, beating its £1.8bn target. The board hiked the dividend per share by 3.64% to 52.65p. It’s been regularly hiking dividends for the last decade. Let’s see what the chart says.
Chart by TradingView
Analysts anticipate continued growth. They forecast a yield of 9.94% in 2024, rising to 10.3% in 10.2%. Personally, I think that’s unmissable.
It was a happy day when Phoenix paid me my last dividend, with hundreds of pounds hitting my trading account. That’s money I get to keep. I find dividends far more satisfying than share buybacks.
Better still, Phoenix has a solid balance sheet, too, with a Solvency II capital ratio of 176%. That’s near the upper end of its 140% to 180% target range.
Am I missing something? I don’t think so. But somebody is. The Phoenix share price is down 24.19% over five years. It’s down 0.39% over 12 months, too, but has been showing signs of life lately, rising 10.33% over the last month.
It was lifted by news that it is looking to offload its non-core SunLife business, which made a profit after tax of £16m last year.
More shareholder payouts to come
Phoenix is aiming to be UK’s leading long-term savings and income business. This looks like a good market to be in, as the population ages, and has to make its own retirement provision. The group already has 12m customers, plus a stake in the growing and lucrative bulk community market, taking on employers’ pension liabilities.
Phoenix also has a whopping £283bn of total assets under management. Of course, this leaves it at the mercy of stock market movements. Something none of us can control. So if markets crash, Phoenix shares will helplessly follow.
It also has to keep seeking new sources of business, to keep the cash flowing. Finally, I have to accept its shares will never shoot the lights out.
Today, Phoenix can’t be beaten for income. Its shares are more expensive than they were but still good value, trading at 9.94 times forward 2024 earnings.
I’ll buy more shares when I have the cash. Then I’ll cross my fingers and hope the board can keep hiking dividends every year, providing me a lucrative second income all the way to my retirement and beyond.
