![11% yield! This passive earnings FTSE 100 share may not be low cost for lengthy 11% yield! This passive earnings FTSE 100 share may not be low cost for lengthy](https://www.fool.co.uk/wp-content/uploads/2022/10/Stock-analysis.jpg)
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Congratulations Phoenix Group Holdings (LSE: PHNX) on the FTSE 100’s highest dividend yield!
The yield has surged to 11.01% as I write. That’s not simply excessive, it’s stratospheric. The perfect shares worldwide not often supply this a lot passive earnings. If it was a dependable yield, I’d snap it up in a heartbeat.
Reliability is the important thing query right here. Is that this weighty payout only a flash within the pan? Or can I depend on large earnings for years and a long time to return? Right here’s my take, together with whether or not I’m shopping for in right here or not.
Just a few months in the past, the yield stood at simply 8%. Since then, the share worth has been sliding, falling round 28% from its excessive in February. The drop within the worth of shares bumped the yield as much as its 11% quantity.
So the payout has grown bigger and bigger, and but traders are nonetheless fleeing the inventory. So what’s occurring?
Insurers struggling
Nicely, a big a part of the enterprise is the administration and acquisition of life and pension funds. In brief, they handle some huge cash – a stability sheet within the lots of of billions – and return that cash in insurance coverage payouts.
These liabilities should be relied upon, so insurers like Phoenix purchase safe-yielding bonds. Nevertheless, excessive rates of interest, like these we cope with in the mean time, make bonds purchased at decrease rates of interest value much less.
The present financial atmosphere poses different points too, like inflation that means folks have much less money to take out insurance policies.
All insurance coverage companies have been struggling recently. It’s why the share costs of different FTSE 100 insurers like Aviva and Authorized & Normal are falling too.
There are parallels to the collapse of Silicon Valley Financial institution earlier this yr. The rise of rates of interest created a squeeze on asset values. When prospects requested for his or her cash, the financial institution couldn’t return it. However Phoenix doesn’t face fairly the identical problem.
Dividend forecasts
It’s not a financial institution, so queues down the road of apprehensive of us demanding their money aren’t the issue. It has taken a success on its property, and this may worsen the longer rates of interest stay excessive, however I’d say we would have an undervalued alternative right here.
The dividend forecasts for the following two years are to extend. It’s true that final yr’s earnings confirmed a internet lack of a few billion, however the accounting is never easy with a finance agency. Really, the following few years of dividends are already on the stability sheet. I don’t see the short-term dividend below menace. The long run, although?
Huge stability sheet
Nicely, trying various years forward is tough. Once more, it is a finance agency that comes with its personal distinctive dangers. It has a gargantuan stability sheet that isn’t simple to grasp. That is what has put me off shopping for in earlier than.
Nonetheless, it’s exhausting to not see the chance right here. I’ve added the inventory to my watch checklist and should purchase in quickly.
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