The longer I invest, the more I appreciate FTSE 100 stocks that offer me a high and potentially rising second income from dividends.
While the S&P 500 has outstripped the FTSE 100 for growth lately, it can’t compete for passive income. Right now, the FTSE 100 as a whole yields 3.58%. That’s more than three times the 1.18% yield on the US index.
It’s not an either/or choice. I have plenty of exposure to the S&P 500 through exchange-traded funds, so I get that growth. I bag my FTSE 100 income by purchasing individual stocks, rather than the index as a whole. That way I can aim to max out my income.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
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This is a brilliant FTSE 100 dividend stock
I own a spread of blue-chip income stocks but Phoenix Group Holdings (LSE: PHNX) is one of the most impressive. Right now, it has a stunning trailing yield of 10.2%. As if that wasn’t enough, it’s forecast to hit a blockbuster 10.7% in 2025.
That’s one of the attraction of dividends. Companies aim to increase them, year after year, as profits rise. It helps keep investors loyal.
There’s no guarantee, of course. If profits or cash flows dip, Phoenix may decide it doesn’t have enough money to fund that largesse. That’s a last resort, though.
The board has a pretty good track record, having increased payouts in eight out of the last 10 years. Currently, analysts expect a payout of 53.9p per share this year, rising to 55.5p in 2025. That’s a modest 2.97% increase, but should help maintain its value in real terms.
At this rate, I can hope to double my money in just over seven years, even if the Phoenix share price doesn’t rise at all.
I expect the Phoenix share price to fly at some point
Which brings me to the main sticking point with Phoenix. Its shares haven’t given investors much growth lately. That’s partly down to today’s high interest rates.
Higher rates mean that investors can get a decent rate of income from cash and bonds, without putting their capital at risk. With rates now expected to stay higher for longer, Phoenix shares have idled.
However, base rates should trail down over the next few years and when they do, cash and bonds will pay less while, with luck, Phoenix will yield even more.
If an investor was to put their entire £20,000 Stocks and Shares ISA allowance into Phoenix shares, they could hope for a superb second income of £2,140 next year. There’s a chance of getting share some price growth on top too. Of course, in reality, diversification is important!
The 14 analysts offering one-year share price forecasts for Phoenix have a median target of 573p. That’s an increase of 10.87% from today. If they’re right – and as ever there are no guarantees – then they’d be looking at a total return of more than 20%. And that’s for just one year. We’ll see.
Either way, I expect to get that dividend on my holdings in Phoenix, and will reinvest every penny to buy more of this brilliant second income stock.
