Today, I want to look at a FTSE 100 stock with a dividend of more than 9% that I’d buy for extra income.
Of course, dividends are never guaranteed and can always be cut. But the company in question has a good track record of delivering on its promises and recently reported “record half year 2022 results“.
A 9% FTSE stock I’d buy now
The company I’m looking at is life insurer Phoenix Group (LSE: PHNX). This £5bn business has one of the highest dividend yields on the UK market, with a 2022 forecast yield of 9.4%.
Although very high yields are sometimes a warning sign of problems ahead, in this case I don’t think that’s true. Phoenix’s latest results showed strong cash generation during the first half of the year, with a record level of new business.
In my view, Phoenix’s recent share price slump is simply a sign of the wider market sell off. I don’t expect the firm’s impressive dividend to be cut. Indeed, I think this could be a good time to buy Phoenix shares.
How I’d target £150 monthly income
A monthly income of £150 would be equivalent to £1,800 of dividends each year. Based on the stock’s current forecast yield, my sums suggest I’d need around £19,000 of Phoenix shares.
At the time of writing, Phoenix shares are trading at 538p. That means I’d need 3,559 shares to generate my target income of £150 per month.
Bear in mind that like most UK companies, Phoenix pays dividends every six months, not monthly. To generate a monthly income, I’d have to allow put my dividend cash in a savings account and pay it out gradually.
How safe is this FTSE dividend?
I think Phoenix offers a fairly safe dividend payout. The company’s core business is buying up life insurance policies from other insurers and allowing them to run until completion.
So far, this long-term focus has allowed Phoenix’s management to provide accurate forecasts of the cash that will be generated by the business. As a long-term dividend investor, that seems ideal for my needs.
However, the recent volatility in UK government debt has been a useful reminder of my main worry about Phoenix. I don’t think Phoenix will be too badly affected by recent events. But I think the company’s cash flow forecasts depend on long-term assumptions and some complex calculations.
I can’t realistically check these sums myself. This means I’m relying on the company’s own accountants for future income predictions.
If I buy the shares, I have to accept there’s a risk that unexpected problems in the future could cause a sharp dividend cut.
What I’m doing now
Right now, my share portfolio is pretty much full up. I already own some shares in another life insurer, and I don’t have room for Phoenix.
However, if I was building a new income portfolio today, Phoenix would definitely be on my list of stocks to buy. I think this FTSE 100 insurer looks like a good dividend investment at current levels.