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It’s exhausting to disregard Phoenix Group (LSE: PHNX) shares as they provide the very best passive revenue stream on the complete FTSE 100 with a trailing yield of 10.42%.
Telecoms big Vodafone Group seems to pay extra revenue with a yield of 10.87%, however don’t be fooled. It’ll slash shareholder payouts in half for the yr to March 2025.
This highlights a recurrent downside with large yielders like these two. Usually, these sky-high yields are right down to a falling share value. Yields are calculated by dividing the dividend per share by the share value, so if the share value slides, the yield mechanically climbs.
On condition that struggling corporations typically can’t keep beneficiant shareholder payouts, a excessive yield can ring alarm bells.
Can the ultra-high dividend survive?
The Phoenix Group Holdings share value is up a modest 5.14% over 12 months, however over 5 years it’s down 27.86%. Regardless of this, I imagine its dividends are sustainable and will develop steadily over time.
On 15 September, the monetary providers group reported a 15% enhance in first-half adjusted working earnings and reiterated each earnings and money era targets. Whole money generated climbed 5.79% to £950m. The board is now aiming to hit the highest finish of its £1.4bn to £1.5bn vary in full-year 2024. Markets now forecast the yield will edge as much as 10.9% in 2025.
Presently, 14 analysts supply one-year share value forecasts for Phoenix Group. They’ve set a median value goal of 576p. This demonstrates cautious optimism, as it might mark a 13.18% enhance from right this moment.
If that forecast got here true I’d be taking a look at a complete return of just about 25% subsequent yr. I’d be pleased with that. I don’t purchase FTSE 100 dividend shares like Phoenix with the intention of creating a quick buck. My hope is that the share value rises over intervals measured in many years, whereas my reinvested dividends additionally compound and develop.
It’s a superb dividend inventory
But that median analyst forecast is made up of a variety of views. Whereas 5 of the 14 brokers label Phoenix a Sturdy Purchase, 4 fee it a Sturdy Promote. Probably the most optimistic share value prediction is 680p. That’s up greater than 33% from right this moment’s 508p, so I hope it’s proper. However the largest pessimist predicts the shares will drop 5.5% to 480p.
How Phoenix does in observe partly relies on rates of interest. Its shares have dipped 9.08% within the final three months as buyers now count on charges to remain greater for longer. Which means savers can get a good yield from low-risk money or bonds, and are much less prone to danger their capital on shares like this one.
Rate of interest cuts would enhance the FTSE 100 typically and monetary shares particularly. We could must be affected person although.
Buying and selling at 15.46 instances earnings Phoenix shares look cheap worth. Even when the restoration takes time, I’m very happy to attend for Phoenix to rise. And whereas I’ll do, I’ll reinvest each dividend it pays me.
