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I purchased FTSE 100 passive earnings hero Phoenix Group Holdings (LSE: PHNX) a few years in the past, as a part of my retirement planning. I used to be dazzled by the earnings on provide, because the insurer boasts one of many highest dividends trailing yields on the blue-chip index at 7.75%. It was yielding nearer to 10% after I purchased it.
The inventory is up 35% over that final 12 months, so I’ve had capital progress in addition to earnings. By the best way, that rising share value explains why the yield has dipped to round 7.75%. The dividend per share hasn’t fallen, new traders are merely paying extra for the shares. My complete return, with reinvested dividends, is round 55% thus far.
Phoenix shares provide dividends and progress
I count on the dividend to develop slowly however steadily from right here. Forecasters anticipate a ahead yield of 8.04% throughout 2025. On £20,000, that will generate earnings of roughly £1,608 over the following yr. That earnings ought to rise in 2026, with luck, as reinvested dividends choose up extra inventory, whereas the yield’s forecast to hit 8.28%.
Dividends are by no means assured however Phoenix has a great monitor file, lifting shareholder payouts for 9 years in a row, together with by means of the pandemic.
The dividend per share rose at an annual charge of three.05% over that interval. I’m anticipating will increase nearer to 2% in future. Equities carry extra threat than deposits, so payouts could be frozen or lower, and costs transfer round. Phoenix must preserve discovering new sources of income to fund its largesse. So it’s excellent news that first-half working money era climbed 9% to £705m, whereas the capital place stays resilient with a Solvency II surplus of £3.6bn.
Laying the foundations
Let’s say an investor held £20,000 in the present day, and the inventory delivered a mean yield of 8.04%. Their reinvested dividends alone would complete £23,339 over 10 years.
That might enhance their complete holding, together with the unique £20k, to £43,339. Based mostly on that 8.04% yield, their annual earnings must be £3,485, and that’s with out dipping into the capital. In apply, it must be a good bit increased because the yield on their authentic stake ought to rise and the share value might climb too. Though in fact, it would fall.
The facility of time
Stretching the instance to twenty years reveals how time and compounding builds value. Retaining the identical yield assumption, £20,000 would develop to £93,912 together with the beginning capital. At 8.04%, that would generate annual earnings of round £7,550.
Add even modest share value progress of three% a yr and the holding might attain £162,412, with potential earnings close to £13,058. These are solely projections, however hopefully present the points of interest of long-term dividend investing. I believe Phoenix shares are properly value contemplating for income-focused traders, with a long-term view.
I’m not counting on one inventory. I maintain a diffusion of FTSE 100 dividend shares and I’m investing much more than £20,000 over time. My goal is to construct a gentle second earnings stream whereas preserving the capital intact. With time and endurance, I’m optimistic I’ll get there.
