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I bought FTSE 100 passive income hero Phoenix Group Holdings (LSE: PHNX) a couple of years ago, as part of my retirement planning. I was dazzled by the income on offer, as the insurer boasts one of the highest dividends trailing yields on the blue-chip index at 7.75%. It was yielding closer to 10% when I bought it.
The stock is up 35% over that last 12 months, so I’ve had capital growth as well as income. By the way, that rising share price explains why the yield has dipped to around 7.75%. The dividend per share hasn’t fallen, new investors are simply paying more for the shares. My total return, with reinvested dividends, is around 55% so far.
Phoenix shares offer dividends and growth
I expect the dividend to grow slowly but steadily from here. Forecasters anticipate a forward yield of 8.04% across 2025. On £20,000, that would generate income of roughly £1,608 over the next year. That income should rise in 2026, with luck, as reinvested dividends pick up more stock, while the yield’s forecast to hit 8.28%.
Dividends are never guaranteed but Phoenix has a good track record, lifting shareholder payouts for nine years in a row, including through the pandemic.
The dividend per share rose at an annual rate of 3.05% over that period. I’m expecting increases closer to 2% in future. Equities carry more risk than deposits, so payouts can be frozen or cut, and prices move around. Phoenix needs to keep finding new sources of revenue to fund its largesse. So it’s good news that first-half operating cash generation climbed 9% to £705m, while the capital position remains resilient with a Solvency II surplus of £3.6bn.
Laying the foundations
Let’s say an investor held £20,000 today, and the stock delivered an average yield of 8.04%. Their reinvested dividends alone would total £23,339 over 10 years.
That would increase their total holding, including the original £20k, to £43,339. Based on that 8.04% yield, their annual income should be £3,485, and that’s without dipping into the capital. In practice, it should be a fair bit higher as the yield on their original stake should rise and the share price may climb too. Although of course, it might fall.
The power of time
Stretching the example to 20 years shows how time and compounding builds worth. Keeping the same yield assumption, £20,000 would grow to £93,912 including the starting capital. At 8.04%, that could generate annual income of around £7,550.
Add even modest share price growth of 3% a year and the holding could reach £162,412, with potential income near £13,058. These are only projections, but hopefully show the attractions of long-term dividend investing. I think Phoenix shares are well worth considering for income-focused investors, with a long-term view.
I’m not relying on one stock. I hold a spread of FTSE 100 dividend shares and I’m investing a lot more than £20,000 over time. My aim is to build a steady second income stream while keeping the capital intact. With time and patience, I’m optimistic I’ll get there.
