Investors seeking passive income may find themselves drawn to the impressive dividend yields offered by Phoenix Group (LSE:PHNX) and Legal & General (LSE:LGEN). Both stocks boast yields approaching double digits, with Phoenix offering a 10.7% yield and Legal & General providing 9.6%. These yields have risen over the past week as the stocks dipped following Trump’s sweeping tariff policy.
A dividend powerhouse
Phoenix Group is the FTSE 100’s top dividend payer. The dividend yield currently sits at 10.7%, based on the payout from 2024, and is expected to rise to around 11% for 2025. That’s based on the current share price.
However, investors should be aware that Phoenix Group typically offers very little in the way of share price appreciation. The stock is actually down 15% over five years. That’s a huge underperformance versus the index.
One factor weighing on Phoenix may be investor concerns about the sustainability of such high payouts. Historically, companies with elevated yields often face scepticism regarding their ability to maintain dividends over time. While much of the disparity relates to accounting practices, the forward dividend payout ratio is around 350%, indicating that earnings are several times less than the dividend.
Moreover, Trump’s newly announced tariffs could present some new challenges for Phoenix. The insurance sector is particularly vulnerable to external economic pressures, as rising costs in industries like automotive and construction directly impact claims expenses.
For example, tariffs on auto parts are driving up repair costs, which insurers must absorb through higher premiums or reduced profitability. Additionally, increased costs for construction materials could lead to higher claims in property insurance.
Nonetheless, Phoenix remains a compelling passive income investment opportunity. It has a robust track record on dividends, and insurance is a necessity for consumers and businesses alike, ensuring that demand persists even during economic downturns. It’s a stock I’ll definitely consider in the current environment.
A little more sustainable
Legal & General offers a slightly lower yield at 9.6%, but it remains one of the UK’s most reliable dividend stocks. The company has built a reputation for progressive payouts, supported by strong cash flow generation and diversified operations across pensions, asset management, and insurance. The stock is up just 3% over five years.
The business has many of the same pain points as Phoenix Group. However, it also operates a diversified business and has benefitted from supportive trends like those in bulk purchase annuity.
On paper, dividend sustainability is stronger than Phoenix, with an 90% payout ratio. Furthermore, its Solvency II coverage ratio stood at an impressive 212%, underscoring its financial resilience.
Like Phoenix Group, Legal & General operates in an industry where demand is non-negotiable. Individuals rely on pensions and insurance regardless of economic conditions. This inherent stability provides a solid foundation for sustaining dividends even during periods of uncertainty.
Legal & General is also on my watchlist, and I’ll consider adding it to my portfolio. Despite near-term challenges, insurance remains an essential service. However, there may be more volatility to come as the current trade chaos unfolds. There may even be better entry points and the ability to lock in even bigger dividend yields.
