2024 is slowly drawing to a close, but opportunities for chunky passive income seem to be everywhere in the stock market. The London Stock Exchange continues to be home to terrific dividend stocks. And just looking from a yield perspective, the FTSE 100 holds some seemingly massive income opportunities.
Take Phoenix Group Holdings (LSE:PHNX) and Legal & General (LSE:LGEN) as prime examples. The shares of these life insurance businesses currently offer impressive payouts of 10.4% and 9.3%, respectively.
So, by considering an investment of £10,000 equally across these two firms, shareholders could potentially unlock an annual £985 passive income. And since both companies have been raising dividends for several years now, this payout could stretch well beyond the £1,000 milestone by the end of 2025 if the current momentum continues.
But if that’s the case, why aren’t other investors jumping on board? Are there certain risks preventing these stocks from rising and normalising their yields closer to the 4% market average? Yes. So, let’s take a closer look.
The bull case
Starting with the positives, Phoenix Group is firmly on track to hit its cash generation target of £1.4bn to £1.5bn. Its 2024 interim results showed promising organic cash growth that enabled management to start deleveraging the balance sheet. Around £250m of debt was repaid, freeing up more free cash flow for operational investment.
Switching gears to Legal & General, the insurance titan has made quite a bit of operational progress. It recently launched a fund focused on affordable housing to capitalise on the government’s commitments to ramp up affordable home building activity. And at the same time, operating profits, while only marginally ahead year on year, did surpass analyst expectations.
What could go wrong?
Typically, strong cash flow generation and operational milestones are celebrated in the stock market. Yet looking at the share price charts, neither company seems to be performing admirably. Over the last 12 months, Phoenix Group is down around 3% after tumbling by 12% in 2023. And Legal & General has achieved similar results over the same period.
General weakness within the insurance sector surrounding uncertainty with interest rates is partly to blame here. But there are some company-specific risks that are undoubtedly also influencing performance.
Looking again at Phoenix, management recently received a bit of a shake-up as the group’s long-term strategy evolves into it being a more ‘broad-based’ pension provider. The detour from its historically successful strategy certainly creates questions among investors as to whether the business can maintain its previous momentum.
As for Legal & General, not everything is hunky dory. Its pension risk transfers segment saw volumes collapse from around £5bn to £1.5bn in its latest results. While there is a pipeline of another £5bn of volume in the works, assets under management have also taken a hit, falling by 3% to £1.14bn. None of this spells disaster. But if these trends don’t reverse, the stock price and potentially even dividend might be heading in the wrong direction.
Time to consider buying?
There’s no denying these high yields look like an incredible passive income opportunity. Yet the risk attached to these businesses gives me pause. Personally, I’m not rushing to buy just now. However, those with a higher risk tolerance may want to consider taking a closer look.
The post These 2 high-yield shares could deliver a £1,000 passive income appeared first on The Motley Fool UK.
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
More reading
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Here’s how the Legal & General dividend yield could ultimately hit 15%!
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
