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I’ve been looking out excessive and low over the previous 12 months for the highest-yielding UK shares for my passive earnings portfolio. Whereas I’ve had some success in my mission, one inventory stays the highest earner in my portfolio.
With sturdy development and a dependable 9% yield, I’m but to discover a inventory that beats Phoenix Group (LSE: PHNX). It’s one of many highest-yielding shares on the FTSE 100 and is up 20% up to now this yr.
The UK insurance coverage sector on the whole is doing effectively, with each Aviva and Admiral Group additionally posting 20%+ beneficial properties. Nonetheless, neither affords such a excessive yield. Authorized & Basic, in the meantime, has a relatively excessive yield however has suffered weak worth efficiency this yr.
Dedication to shareholder returns
Regardless of a rocky financial local weather rattled by quite a few geopolitical occasions not too long ago, Phoenix stays devoted to delivering returns to shareholders. This makes it a compelling inventory to think about for income-focused buyers. As a stalwart within the UK insurance coverage sector, the corporate has lengthy supplied a sexy dividend coverage.
Since introducing dividends in 2009, they’ve elevated yearly at a mean price of two.91%. It doesn’t fairly have the long-running and spectacular observe document of Authorized & Basic, but it surely appears to be heading that manner.
Nonetheless, it’s important to additionally contemplate the potential dangers inherent in its monetary construction and market dynamics.
Troubling occasions
In 2024, the group reported a internet lack of £1.12bn, a stark distinction to the £34m revenue within the earlier yr. This downturn was attributed to components corresponding to market volatility and regulatory modifications impacting the insurance coverage trade.
Furthermore, the corporate’s dividend payout ratio is -48.25% as a result of earnings are unfavorable and don’t cowl dividend payouts. Whereas it has substantial money reserves to mitigate any quick issues, it could wrestle to maintain dividends if efficiency doesn’t enhance.
The broader financial atmosphere additionally poses challenges. The UK’s insurance coverage sector is experiencing a deceleration in premium earnings development, with forecasts predicting a decline from 5.8% in 2024 to 4.4% in 2025 for all times insurance coverage premiums. Such tendencies may impression the corporate’s income streams and profitability.
One the plus facet, its working money era reached £1.4bn in 2024, surpassing its 2026 goal two years forward of schedule. This goes an extended strategy to supporting its dividend coverage and offering a buffer towards financial uncertainties.
Strategic enterprise developments
A key attraction for me is promising variety of enterprise developments fuelling the insurer’s development technique.
Regardless of posting a £1.12bn loss in 2024, it loved a 31% enhance in adjusted working revenue of £825m, pushed by a 34% rise in retail gross inflows to £5.1bn. Such development underscores the effectiveness of its three-year technique targeted on sustainable and worthwhile enlargement in each Pensions & Financial savings and Retirement Options segments.
Much more spectacular is its proactive method to debt administration. It paid off £250m over the previous yr, sustaining a steady Solvency II leverage ratio of 36%. Plans are in place to cut back this ratio to roughly 30% by the top of 2026, reflecting a prudent capital allocation technique.
General, the above components make me really feel assured that Phoenix Group will proceed main my passive earnings technique. As such, I imagine that buyers with the same purpose could be smart to think about it.
