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Because the FTSE 100 continues its surge above 9,000 factors, the largest dividend yields are falling. It appears hardly any time because the index was headed by shares providing yields over 10%. However earlier chief Phoenix Group Holdings (LSE: PHNX) is now down to eight%.
Taylor Wimpey (LSE: TW.) most catches my eye, on a forecast 9.3% yield. It bought a lift from final 12 months’s share value surge dropping its manner — the inventory has fallen 40% previously 12 months.
Inflation again on the rise doesn’t assist, and it may set the housebuilding restoration again even additional. Much less money in folks’s pockets mixed with still-expensive mortgages doesn’t assist house gross sales.
I’d thought we have been getting previous the times of depressed builder shares. However perhaps they’re again for some time but. And I feel it provides us a renewed alternative to contemplate shopping for for the long run whereas shares are down.
With first-half outcomes on the finish of July, the corporate dropped its interim dividend to 4.67p per share — from 4.8p a 12 months prior. I don’t see that as an issue, with the dividend set at 7.5% of internet belongings. It doesn’t immediately mirror profitability.
First-half loss
However the agency additionally posted a £92.1m first-half loss earlier than tax, which compares badly to final 12 months’s £99.7m revenue. It was, nevertheless, primarily because of one-off prices. These embrace a Competitors and Markets Authority settlement, prices from fireplace cladding provisions, and different historic points.
Forecasts are fairly buoyant, predicting a return to robust earnings in 2026 and 2027. They usually see the dividend basically regular over the following few years.
One little bit of unhealthy information can usually be adopted by others, so I wouldn’t rule out extra price impacts. Inflation stress may preserve constructing shares down for some time but. And a ahead price-to-earnings (P/E) ratio of 10.6 — after 2025’s appears to be like like spiking because of first-half losses — is perhaps not low cost contemplating the sector dangers.
But when that excellent 9%+ dividend yield retains going — which we will’t assure — I feel this might nonetheless be one of many FTSE 100’s greatest dividend shares to contemplate now.
Insurance coverage yields
Getting again to Phoenix Group, 8% remains to be a cracking yield. However can the corporate can preserve it? That needs to be the large uncertainty.
Metropolis analysts suppose it’ll be paid, even barely raised, a minimum of till 2027. They usually see earnings rising strongly over that timescale too, as the corporate appears to be like set to swing again to bottom-line revenue. However even with bullish earnings forecasts, we’d nonetheless see the mooted dividend barely lined in 2027 — and never near lined earlier than then.
Money reserves falling
Nonetheless, the money accessible for insurance coverage corporations to pay dividends is a little more complicated than that. And at FY 2024 outcomes time, Phoenix put its distributable reserves at at £5,571m. However forecasts counsel internet money may dwindle to only £540m by 2027.
I’m nonetheless contemplating shopping for Phoenix Group shares. However I’m a bit nervous that 2027 may very well be a crunch 12 months for deciding whether or not the large dividends actually are sustainable.
