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Forget a Cash ISA! I’d buy this FTSE 100 dividend stock instead

It seems like a long time since storing money in a cash savings account such as a Cash ISA was a wise investment decision. With interest rates being maintained at low levels (below inflation) in recent years, and any prospective increases unlikely to be anything substantial, holding your funds in a Cash ISA is not remotely profitable.

With the current rate of inflation hovering around 2% in the UK, spending power would actually decrease by holding money in a Cash ISA.

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What I’d do instead is look at some solid FTSE 100 companies that provide chunky dividends to shareholders, increasing the likelihood of a better return for your investment.

One company which I see as providing a good base for income in this way is Phoenix Group Holdings (LSE:PHNX).


The FTSE 100 life and pensions consolidator has been quietly going about its business of buying up the books of other insurers to see policies through to completion, rather than simply selling policies directly.

Phoenix only entered the UK’s primary stock index this year, following growth and strong cash flow over the last few years.

Among its most notable acquisitions in recent times was its purchase of Standard Life Aberdeen’s Assurance policies, creating upwards of £500m worth of savings by incorporating the assets into its existing operations.

With the insurance industry undergoing something of a transformation, Phoenix is one of the most innovative business models within the sector and can continue to generate high levels of cash as it scales up.

Much of the cash it is generating is being returned to shareholders as dividends, currently supporting a 6.6% yield off a share price of 690p.

Quarterly results

Phoenix announced strong quarterly results earlier this month in which the company said it expected to achieve the upper end of its cash generation target of between £600m and £700m in the 2019 financial year.

On a year-on-year basis, operating profit grew to £325m for the first half of 2019 from £216m.

Something that also impressed me from the earnings report was the manner in which the firm discussed dividends, emphasising Phoenix’s aim of maintaining the ‘sustainability’ of shareholder payouts.

To me, that sounds like the board will be pragmatic in its approach to dividends, and only raise payouts when it is deemed responsible to do so.

Phoenix is still relatively unknown among investors after only making its debut in the FTSE 100 in February, but I believe it will be appearing on more investment radars over the next few months and years if it continues to grow and generate impressive cash levels.

With the dividend yield forecast to rise to more than 7% before the end of the year, I see Phoenix as a much more attractive investment than holding funds in a Cash ISA. 

While holding in a Cash ISA may be safer bet in the eyes of many, my belief is that over the long term, buying and holding this income stock would boost my portfolio significantly.

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Conor Coyle has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.