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The FTSE 100 has a status for providing defensive, excessive dividend-yielding shares for passive earnings traders. Nonetheless, it’s not on daily basis that traders get the chance to lock in a ten.3% dividend yield.
Proper now, Phoenix Group Holdings (LSE:PHNX) at present affords the most important shareholder payout within the UK’s flagship large-cap index. And what’s extra, administration’s nonetheless climbing dividend payouts. Is that this too good to be true, or is it a screaming purchase for UK earnings traders?
A bright-looking future
Insurance coverage will not be the sexiest trade on the market, however for Phoenix shareholders, it’s proving to be a profitable one. As we speak, the agency has a market capitalisation of £5.2bn. That’s really in direction of the decrease finish of its 10-year vary when trying on the historic inventory worth chart. Nonetheless, dividends have been flowing and rising all through this era, greater than offsetting the stagnant share worth return.
Wanting on the newest analyst forecasts, it appears opinions are comparatively bullish, with earnings anticipated to broaden over the subsequent two years. All being equal, that paves the way in which for even increased dividends.
In reality, the present consensus predicts that the full-year dividend for 2024 will attain 54.14p earlier than climbing to 55.7p in 2025. When in comparison with the present share worth, that locations the ahead dividend yield at a staggering 10.6%.
Meaning for each £10,000 invested on this FTSE 100 inventory, traders are anticipated to earn £1,060 in dividends every year. For sure, in comparison with a 3% rate of interest on a financial savings account, that’s fairly a considerable distinction.
So why aren’t extra traders capitalising on this chance?
Nothing’s risk-free
As is the case with each inventory, even these within the FTSE 100, Phoenix’s dividend future is way from assured. That is very true given the agency’s at present in the midst of transitioning in direction of a broad-based pension supplier from a speciality supplier.
In different phrases, Phoenix is coming into a brand new area within the insurance coverage marketplace for the primary time. Whereas this transfer does open the door to new long-term alternatives, it additionally exposes the group to fierce competitors from rivals like Aviva – an organization with way more expertise and assets to guard its market share.
This uncertainty seems to be giving numerous institutional traders pause. In any case, it’s unknown whether or not Phoenix’s new technique shall be successful or trigger the insurance coverage large to fall flat on its face, taking its spectacular dividend yield with it.
Personally, I’m erring on the aspect of warning and ready to see extra progress within the transition. That might imply I is likely to be lacking out on a uncommon alternative to safe a sustainable double-digit yield.
However with different lower-risk, high-yielding earnings alternatives to choose from, that’s a call I’m comfortable to make.
