Even after delivering its strongest return since 2009, the FTSE 100 is still home to a long list of high-yielding income stocks for investors to capitalise on. And among these stands Phoenix Group Holdings (LSE:PHNX) – an evolving insurance giant paying 7.36% in dividends today.
That’s more than double the 2.96% offered by its parent index. And looking at its current share price, investing just £500 is enough to buy roughly 67 shares, unlocking a £36.65 passive income in the process.
So is this a screaming buy in January?
The bull case
Higher interest rates have sent massive tailwinds throughout the financial sector. And for insurance and retirement saving experts like Phoenix, it’s paved the way for impressive earnings growth that fuelled ever-increasing dividends.
In fact, Phoenix is on track to deliver 10 consecutive years of payout hikes later this year. And what’s more, despite its high yield, the company’s still generating 1.65 times more underlying operating cash flow than it is paying out to shareholders as per its latest results.
To top things off, its regulatory solvency ratios sit comfortably ahead of required thresholds, while management continues to progress towards its target of £250m of annualised savings by the end of this year. In other words, not only is the yield high, but this income stock apparently has the financials to keep it that way.
Its fortress balance sheet, paired with continued strong tailwinds within the pension de-risking market, creates multi-year cash flow visibility. But at the same time, it also opens the door to new expansion opportunities as Phoenix enters the next chapter of its journey under the new brand of Standard Life in March.
So far, for income investors, this stock looks like a screaming buy. But if the financials are so strong and the future so bright, why aren’t more investors rushing to buy shares?
Beware of the hidden risks
While the company’s fundamentals look strong right now, that doesn’t guarantee they’ll remain that way forever. And several institutional analysts have begun flagging concerns about the wider insurance sector as we enter 2026.
The company remains extremely sensitive to changes in interest rates. And with the Bank of England expected to cut rates even further throughout this year, the gold rush in annuities should start to dry up, especially as competitors are all striving to secure the largest slice of the pie.
Yet even if interest rates remain stable, that too could cause problems. If the UK falls into a recession, businesses will likely seek to preserve as much cash as possible, harming demand for further pension de-risking activity. Even individual personal pensions could see lower activity as households prioritise mortgages during a recessionary environment.
Put simply, while Phoenix Group has demonstrated an impressive knack for execution, the company remains exposed to significant macroeconomic risks beyond management’s control.
With that in mind, this 7.4%-yielding income stock is definitely worth a closer look, but only for investors who are comfortable with the elevated risk. The good news is that, for more conservative investors, there are plenty of other income stocks in the FTSE 100 to explore.
