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I love my Phoenix (LSE: PHNX) shares. The FTSE 100 insurer has smashed expectations since I added it to my Self-Invested Personal Pension (SIPP) in late 2023. Should I double down and buy some more?
I bought Phoenix Group Holdings, to use its full name, primarily for income. At the time, the dividend yield was nudging 10%. The shares looked ridiculously cheap, trading on a price-to-earnings (P/E) ratio of around six or seven. But I hesitated. It looked too good to be true. Was I missing something?
This is what convinced me. Inflation was still high, with interest rates above 5%. This meant investors could earn a generous risk-free return from cash and bonds. There was no need to put capital at risk to generate income.
FTSE 100 dividend superstars
I decided that wouldn’t last forever. At some point, inflation and interest rates would fall and, when they did, the chunky yields on FTSE 100 shares like Phoenix would suddenly look much more attractive.
Those rate cuts took longer than I expected, but they’re getting there. The Bank of England is expected to cut base rates to 3.75% tomorrow (18 December) with more to follow in 2026.
The Phoenix share price has exceeded my expectations, climbing 36% over the last year. The trailing dividend yield has shrunk as a result, but is still a handsome 7.76%. My total return, with dividends reinvested, is around 57%. Not bad for an old-school, unglamorous, UK blue-chip.
There was another reason I hesitated before buying Phoenix. I already held high-yielding FTSE 100 financials M&G and Legal & General Group. Adding Phoenix risked concentrating my SIPP a little too much.
Even so, the opportunity felt too good to miss, and I don’t regret it. The M&G share price is up around 40% over the last year and still offers a trailing yield of 7.25%. Legal & General’s lagged, with shares up just 10%, but compensates with the highest yield on the index at 8.45%.
I’m hoping Legal & General will play catch-up at some point. Investment performance tends to be cyclical, and share price growth tends to come in bursts. While I wait, I’ll reinvest every dividend to boost my stake.
It’s a red-letter day whenever one of their payouts lands in my SIPP. They’re already worth hundreds of pounds each and arrive twice a year. So that’s six times in total.
Reinvesting my income
Phoenix has a solid record, having raised its dividend for nine years in a row at an average pace of around 3%. That’s likely to slow to nearer 2%, but with inflation easing and the yield already so generous, I’m not complaining.
So should I buy more? There are risks, of course. All three are exposed to a wider market sell-off, which would hit asset values, earnings and inflows. They also need to keep finding new sources of revenue and cash flow. Pension risk transfer is a big opportunity, but competition’s fierce.
They’re no longer as cheap as they were either. Phoenix now trades on a price-to-earnings ratio of around 21. Even so, I still think they’re worth considering for income-focused investors willing to take a long-term view. Those yields are simply too big for me to ignore. I’m preparing to buy more, starting with Phoenix.
