Passive income investors like me are always on the hunt for stocks that can quietly compound wealth in the background.
The UK’s largest long-term savings and retirement company, Standard Life (LSE: PHNX) — rebranded from Phoenix Group Holdings on 2 March — looks exactly like one of those rare candidates to me.
But why?
Powered by stunning earnings growth
The engine driving any firm’s dividends over time is earnings growth. A risk to Standard is any further surge in the cost of living that may prompt customers to close their business with the firm. Even so, analysts’ consensus forecasts are that its earnings will grow by a standout 103.6% average a year over the medium term.
Standard’s latest results (H1 2025) underpin this consensus, in my view. Adjusted operating profit jumped 25% year on year to £451m, while operating cash generation rose 9% to £705m. This size of cash pile can be a major driver for growth in and of itself.
The group also strengthened its Solvency II capital position to a 175% coverage ratio. This gives it the financial flexibility to keep investing in growth and supporting its progressive dividend policy.
Management affirmed it is on track to achieve a 2024-2026 total cash generation target of £5.1bn. It added that it is on course for around a £1.1bn adjusted operating profit this year.
Rising dividend yield forecasts
Standard has built its income appeal on one simple habit: raising the dividend, year after year, without fuss. As of now, it generates a return of 7.2% on the current share price of £7.54. This is more than double the FTSE 100’s present average of 3.1%.
That said, the consensus forecast of analysts is that the dividend will rise to 57p this year, 58.8p next year, and 60.7p in 2028. These would generate respective yields of 7.6%, 7.8%, and 8.1%.
That is fully consistent with management’s progressive dividend policy. This is where a dividend is expected to rise with earnings per share but will not be reduced if earnings fall.
How much passive income could be made?
Investors considering a £20,000 holding in Standard (the same as mine) could collect £24,836 in dividends over 10 years and £205,330 after 30 years.
This reflects the forecast yield of 8.1%, although dividend returns can change over time — down or up. It also assumes the payouts are reinvested into the stock to harness the turbocharging effect of ‘dividend compounding’.
By the end of the 30-year period, the £20,000 holding would be worth £225,330. And that would deliver a passive income of £18,252 a year from dividends alone to investors who took the plunge!
My investment view
I see Standard as the archetypal passive income stock. It has exceptional earnings growth prospects, dependable cash flows, and a progressive dividend policy.
It also has a yield that usually looks too good to be true but is not.
In short, it is not a stock that will double in value overnight, in my view. But it absolutely looks to me like one that could quietly fund someone’s retirement, if held long enough.
Consequently, I will be buying more of the shares very soon.
