As the FTSE 100 continues its surge above 9,000 points, the biggest dividend yields are falling. It seems hardly any time since the index was headed by stocks offering yields over 10%. But previous leader Phoenix Group Holdings (LSE: PHNX) is now down to 8%.
Taylor Wimpey (LSE: TW.) most catches my eye, on a forecast 9.3% yield. It got a boost from last year’s share price surge losing its way — the stock has fallen 40% in the past 12 months.
Inflation back on the rise doesn’t help, and it could set the housebuilding recovery back even further. Less cash in people’s pockets combined with still-expensive mortgages doesn’t help home sales.
I’d thought we were getting past the days of depressed builder shares. But maybe they’re back for a while yet. And I think it gives us a renewed opportunity to consider buying for the long term while shares are down.
With first-half results at the end of July, the company dropped its interim dividend to 4.67p per share — from 4.8p a year prior. I don’t see that as a problem, with the dividend set at 7.5% of net assets. It doesn’t directly reflect profitability.
First-half loss
But the firm also posted a £92.1m first-half loss before tax, which compares badly to last year’s £99.7m profit. It was, however, mainly due to one-off costs. Those include a Competition and Markets Authority settlement, costs from fire cladding provisions, and other historical issues.
Forecasts are reasonably buoyant, predicting a return to strong earnings in 2026 and 2027. And they see the dividend essentially steady over the next few years.
One bit of bad news can often be followed by others, so I wouldn’t rule out more cost impacts. Inflation pressure could keep building stocks down for a while yet. And a forward price-to-earnings (P/E) ratio of 10.6 — after 2025’s looks like spiking due to first-half losses — is maybe not cheap considering the sector risks.
But if that superb 9%+ dividend yield keeps going — which we can’t guarantee — I think this could still be one of the FTSE 100’s best dividend stocks to consider now.
Insurance yields
Getting back to Phoenix Group, 8% is still a cracking yield. But can the company can maintain it? That has to be the big uncertainty.
City analysts think it’ll be paid, even slightly raised, at least until 2027. And they see earnings rising strongly over that timescale too, as the company looks set to swing back to bottom-line profit. But even with bullish earnings forecasts, we’d still see the mooted dividend barely covered in 2027 — and not close to covered before then.
Cash reserves falling
Still, the cash available for insurance firms to pay dividends is a bit more complex than that. And at FY 2024 results time, Phoenix put its distributable reserves at at £5,571m. But forecasts suggest net cash could dwindle to just £540m by 2027.
I’m still considering buying Phoenix Group shares. But I’m a bit nervous that 2027 could be a crunch year for deciding whether the big dividends really are sustainable.
