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Each time I tuck right into a sausage roll I get an irresistible urge to spend money on bakery chain Greggs (LSE: GRG) shares for some motive. That’s an issue although. Whereas the sausage roll solely prices a few quid, I wouldn’t make investments lower than £1k in a inventory and I don’t have that proper now.
And once I do, I’ll in all probability purchase BP shares first, as a result of they’ve been on my buying checklist for yonks and look good worth because the oil value falls under $80 a barrel.
So the place do I increase the cash? How about insurance coverage conglomerate Phoenix Group Holdings (LSE: PHNX), which I maintain inside my self-invested private pension (SIPP)? Phoenix has the best yield on the whole FTSE 100, (for those who ignore Vodafone Group, which cuts its dividend in half subsequent yr).
Swapping revenue for progress
Phoenix has a meaty trailing yield as we speak of 10.69%. I did my analysis earlier than shopping for it in January, and determined there was a good probability it was sustainable. Fingers crossed! All dividends are mortal, and double-digit yielders have a very excessive demise charge.
Phoenix paid me my first dividend of a number of hundred kilos in Might, which was good. I did what I all the time do with dividends, and reinvested it straight again into its inventory.
The disadvantage with Phoenix is that whereas it’s nice at paying dividends, it’s struggled to ship share value progress. Its shares are down 11.79% over the past yr, and 27.87% over 5 years.
It did bounce in March after delivering a optimistic set of full-year outcomes, with revenues, earnings and new enterprise all climbing. It additionally generated £2bn money, beating its upgraded goal of £1.8bn and supporting the dividend.
But the Phoenix share value quickly sank again into the doldrums, and I’m questioning whether or not a greater use of my dividend can be to speculate it into an organization with larger progress prospects. Step ahead Greggs.
FTSE 250 progress inventory
The Greggs share value is up 7.33% over one yr and 32.85% over 5 years. By reinvesting my Phoenix dividends into its shares, I might doubtlessly generate each revenue and progress over time. So ought to I do it?
Greggs is purple scorching proper now with complete 2023 gross sales leaping 19.6% to £1.8bn. Its replace on 14 Might served up one other 13.7% complete gross sales progress for the primary 19 weeks of 2024. That’s regardless of “difficult situations” because the cost-of-living disaster drags on.
The FTSE 250 group now boasts 2,500 shops, after opening one other 64, and is increasing into ice drinks together with espresso, flavoured lemonades and coolers.
There’s an issue although. Greggs shares look totally priced after their robust run, buying and selling at 23.42 occasions earnings. That compares 15.6 occasions earnings for Phoenix. I feel I’ve left it too late.
Greggs’ yield is inevitably a lot decrease at 2.11%. Phoenix pays 5 occasions as a lot revenue, and its shares are cheaper at 15.6 occasions earnings. Sorry Greggs. I feel I’ll keep on with my unique plan and reinvest my dividends again into Phoenix. If the dividend holds I’ll double my cash in simply over seven years, with any share value progress on high.
