I always think one thing when I get a dividend share payout. No matter what happens to the share price, they can’t take the cash back.
If I buy shares with an 11% yield, I could have my money back in a bit over nine years. And then the share price itself is a bonus.
You don’t get that with these ‘jam tomorrow’ growth stock hopefuls.
Dividend cuts?
That’s a bit of an ideal, I know, and it might not work out quite like that. Future dividends are not guaranteed, and can be cut when the cash isn’t there.
Vodafone, for example, offers a forecast dividend yield of 10.9%. But the telecoms giant plans to slash it in half next year, as as it refocuses its strategy.
The 11% I’m looking at here is from Phoenix Group Holdings (LSE: PHNX), which acquires and manages closed insurance and pension funds.
The yield as a percent is this good partly because the Phoenix share price has fallen 30% in the past five years.
Dividend growth
Still, while the share price weakness might flatter the yield, the dividend has been growing steadily in cash terms.
And that should continue, according to the firm’s FY results update in March, when CEO Andy Briggs announced a “new progressive and sustainable dividend policy.”
We didn’t get much in the way of detail, but the board did say it “will continue to prioritise the sustainability of our dividend over the very long term.“
Will it happen?
Now, none of this is any kind of guarantee. And at the first sign of any new financial pressures, this could all change and the dividend could be cut at the drop of a hat.
Future plans depend on being able to grow assets, which in turn should boost earnings and cash flow. Right now, the company is bullish.
But financial firms were optimistic before the 2008 banking crash. And again before Brexit, and before Covid…
So anyone considering buying Phoenix Group shares now should be sure they’re happy with all the risks.
Reinvest
And, to make the most of a top dividend stock like this, we need to add more risk. It means buying new shares with the dividend cash each year, which can seriously boost the power of compounding.
Remember when I said that dividends can’t be taken back once they’re paid? Well, we lose that safety when we plough the cash back into new shares… which can fall.
Still, if we take that approach with Phoenix Group, the dividend yield stays at 11%, and we keep reinvesting it?
Well, every £1,000 we start with today could turn into £8,000 in 20 years. Or a stunning £22,000 in 30 years.
Diversify
I don’t really expect to get that return. For one thing, I’d hold a diversified portfolio and that would bring down my average return.
But I still rate high-yield dividend stocks like this as my best chance for building long-term wealth.
The post At 11%, this dividend share pays the biggest yield in the FTSE 100 appeared first on The Motley Fool UK.
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy — and discover:
Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
How to potentially get paid by the weather
Electric Vehicles’ secret backdoor opportunity
One dead simple stock for the new nuclear boom
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
More reading
A 10.9% yield but down 14%! £11,000 in this FTSE dividend superstar could make me £26,716 in annual passive income
This 10.6% yielder beats every dividend share on the FTSE 100. Can it last?
Could these 2 recovering UK stocks become future passive income heroes?
Dividend yields up to 11.1%: 3 FTSE 100 passive income shares to consider
£11,000 in savings? Here’s how I’d aim to turn that into a £28,220 annual passive income!
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.