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.

With the Bank of England stepping in to restore orderly financial conditions, a deeper crisis may have been averted.

Cheap dividend shares

That could bode well for long-term savings and retirement business Phoenix Group (LSE:PHNX).

Yes, the economic environment remains uncertain. Any further disruption to financial conditions could negatively impact Phoenix in the near term.

But due to the recent drop in the share price, it offers a whopping 10% dividend yield. I don’t think this opportunity will last much longer, so I’m keen to buy it soon if funds allow.

Just two weeks ago, it was yielding ‘only’ 8%. That helped to make it one of the best dividend shares in the FTSE 100. Now, the opportunity is even better, in my opinion.

Dividend shares aren’t just about the yield, though. I prefer those that offer sustainable, affordable and reliable dividends. I reckon Phoenix Group ticks those boxes too. Its dividend cover of 1.8 times, and 13 years of consecutive payments looks impressive.

Looking ahead

Next, I’d consider housebuilder Taylor Wimpey (LSE:TW.). But why would I even think about buying shares in this sector when the outlook looks so dire?

This industry could face challenges with a potentially weaker UK housing market. Interest rates are rising, and mortgages are becoming more expensive as a result. The cost-of-living squeeze could also put additional pressure on affordability.

So far, house prices have proved resilient. But I think that could be about to change, and I’d expect a more challenging period ahead.

That said, Taylor Wimpey’s share price has already fallen by 33% over the past year. And its price-to-earnings ratio has fallen from 9 times to 5 times so far this year, which makes it remarkably cheap. It could be argued that a weaker housing market outlook is already priced into the shares.

Its chunky 10% yield looks appealing to me. If I had some spare cash, I’d buy these dividend shares today for the passive income they could provide.

Stable passive income

Lastly, I’d pull the trigger on Legal & General Group (LSE:LGEN). It offers an appealing 9% yield. This insurance business is well-established. Impressively, it has been distributing regular dividends for over 30 years. This is just the kind of reliability I like to see in the best dividend shares.

The financial services firm reported that market volatility had limited economic impact on the company. That could make recent share price falls an opportunity, in my opinion.

CEO Nigel Wilson commented, “Our businesses are resilient, and we are on track to deliver good growth in key financial metrics for 2022.”

I have to bear in mind that share price growth has been limited over the past few years. And a weaker economy could limit the significant growth seen in the past.

That said, its solid dividend yield should make up for it. With growing earnings, a sensible balance sheet and a well-covered dividend, I’d certainly buy these dividend shares if I had some extra cash.

Interest rates are climbing

Barclays (LSE:BARC) paid a total dividend of 6p per share in 2021. At the current share price of 164p, this equates to a dividend yield of 3.63%. Investment in this company could provide potentially solid income, although I’m aware that dividend policies may be subject to change in the future.

The banking firm has been benefiting from rising interest rates in recent times. In the UK, rates have climbed to 1.75% and may rise further. 

This is generally good news for Barclays, because it means the business may be able to charge more for loans and mortgages. 

In its British operations, for the six months to 30 June, net interest increased by 6% to £2.7bn. In addition, the net interest margin (the difference between how much Barclays charges for loans and how much its pays via savings accounts) rose to 2.67% from 2.54%. Greater market volatility helped trading profits to grow by 54%.

There are, of course, risks from wage and cost inflation. These may begin to eat into future balance sheets.

On the flip side, Barclays has maintained its presence in the investment banking sector. It has worked to expand this operation and increased its market share as competitors have moved away from this service.

8.12% yield!

Second, Phoenix Group (LSE:PHNX) paid a total dividend of 48.9p per share in 2021, which equates to a dividend yield of 8.12%. This is one of the highest yields on the market today.

For the six months to 30 June, the asset manager paid an interim dividend of 24.8p. This represents a 3% increase year on year.

In addition, it announced that new business generation amounted to £430m. This was up from £206m for the same period in 2021 and is an indication that the firm is growing. Cash generation from current projects came in at £950m, up from £872m in 2021.

However, given the uncertain economic outlook, including the war in Ukraine and rampant inflation, the company isn’t quite sure how its assets and results will be affected in the near future.

Despite this, Phoenix Group boasts a strong cash position of £12.27bn. Total debt stands at £3.9bn.

Given this strong balance sheet, I feel that the business can overcome any difficulties that arise.

Overall, both of these companies could provide me with an attractive income stream. While there may be bumps in the road, I’ll add the two firms to my portfolio soon and hold them for the long term.

So let’s take a closer look at how compound returns works, and my top stocks for the strategy.

Compounding returns

Compounding returns is a strategy that requires me to reinvest my dividends. In order words, I need to be in a position whereby I don’t need the dividend payments now.

So let’s say I invest a slump sum of capital, £20,000, into four income stocks offering me a 5% yield on average every year.

And at the end of the first year I reinvest the £1,000 I receive in dividends. So I’ll have £21,000 (assuming the share prices remain constant).

So at the end of 30 years, I’d have £50,000 right? Well, if I did think that, I’d be wrong. That’s not how compounding works. Instead, I’d actually have £89,000! Because I’d be earning interest on my interest.

But the impact of compounding is even greater if I contribute regularly. In fact, contributing regularly is core to my investment strategy.

So if I invested just £20 a day, or £600 a month on top of the above, after 30 years I’d have £588,000.

Now that’s a big chunk of money. And this would certainly help me retire early. With that, I could generate nearly £30,000 in passive income each year if I kept my money in dividend stocks paying 5% annually.

It’s also worth remembering that share prices tend to move upwards. For example, the FTSE 100 started nearly 40 years ago, but today, the value of the UK’s top 100 companies is 7.5 times greater than it was back then. This is indicated by the fact that the FTSE 100 index is currently around 7,500, and the index started at 1,000.

If I choose well, I’d expect to see the value of the share I own increase over the next 30 years too. But I have to accept that some of my picks could go down too!

Where to put my money?

I’m investing for the long run, so I want to be sensible. Obviously I can move my money between different stocks over time, but I want to start off with sensible choices.

Ultra-high dividends might be attractive but, in reality, it’s normally unsustainable. I’m looking at firms that can offer me something around 5%, and do it sustainably.

Lloyds is a top choice for me right now. The bank, which is heavily focused on the comparatively low-risk mortgage market, currently has a 4.5% dividend yield. And with net interest margins on the rise, I wouldn’t be surprised to see that move up further in the coming months or years if higher interest rates are sustained.

Another option is life insurance specialist Phoenix Group. It’s currently offering a dividend yield of 7.5%. I see this blue-chip insurer as a good long-term bet for my portfolio. It buys out and manages legacy life insurance and pension funds that are closed to new business and manages them. Phoenix has a track record of clever acquisitions and mergers to continue growing the business.

Let me provide the back story to my relationship with this stock.

Inflation-protecting payouts

Earlier in May, I highlighted how the Phoenix Group was a company offering the type of income return that could protect against inflation. The reason was that its dividend yield — at 8% — was one of the highest in the FTSE 100. The yield was also above the inflation rate (7.9% at the time of writing).

The best bit was that I believed the dividend could grow even further in the long run. Recent developments confirm this may be the case. Earlier this month, Phoenix CEO Andy Briggs announced a 2.5% dividend increase. In this regard, the stock is performing in line with my expectations.

A bull run looks under way

I also anticipated that capital growth was a possibility, but not a guarantee. Funnily enough, I now think the capital growth case is just as compelling as th- high yielding income payouts that Phoenix offers.

The stock has risen 10% since I last covered it. And here are three reasons why I believe there’s even more growth on the horizon.

First, the dividend increase I mentioned earlier was linked to a cash-funded acquisition of insurers Sun Life UK. This instantly increases Phoenix’s market share and future earning potential. It seems the chief executive agrees with me. His purchase of half a million pounds worth of shares in the past year demonstrates confidence in the company’s future.

Second, Phoenix has a higher annual earnings forecast than other insurers like Prudential and Legal & General. Despite this, the Phoenix Group share price is still undervalued relative to those peers.  

Third, a consensus of city analysts suggests the fair value of the stock should be over £10 when future cash flows for the company are considered. That’s a great deal more than its current price of around £6.80. It’s a serious indication to me that there’s more mileage in this growth story.

Higher rates benefit the share price  

The chance of the stock seeing long term growth looks even stronger once I take into account the current macroeconomic environment.

Underlying inflation pressures should remain elevated and central banks will most likely continue increasing interest rates.

As interest rates head upwards, an insurance company’s liabilities (in the form of life policies) decline. This makes them more profitable.

As such, I’m backing the Phoenix Group to continue be a strong performer during the current business cycle. And I am expecting this performance to continue to boost the share price.

I intend to purchase some shares ahead of the next dividend payment.

Retirement planning and savings

As a quick introduction, Phoenix is a long-term savings and retirement business with products to help people thinking about that next phase of life. In fact, it is the largest of its type in the UK, with over 13m customers and nearly £310bn of assets under management.

So what’s happening with Phoenix shares currently? Well, as I write, they’re trading for 663p. At this time last year, the stock was trading for 649p, which is a 2% return over a 12-month period. Since the stock market dip in March caused by the invasion of Ukraine, the shares have returned 18% from 560p to current levels.

A dividend stock with risks

One way that Phoenix has grown to become one of the biggest businesses in its sector has been shrewd mergers and acquisitions (M&A). Although this can be a positive in my eyes as it helps boost growth and returns, there is an element of risk involved too. M&As can be costly and sometimes a mistake. Firstly, Phoenix could overpay for a business which could affect its balance sheet and returns. Next, if the new business fails to integrate, disposing of the business could be costly operationally and financially too.

As with any dividend stock, dividends are never guaranteed. They can be cancelled at any time at the discretion of the business. A couple of reasons can prompt this. One could be poor performance and another could be an extreme event like a financial crash.

The bull case

So to the positives then. The savings and retirement sector is a burgeoning market. The UK has an ageing population and in recent years there has been a renewed emphasis on planning for retirement. This should boost firms like Phoenix and its performance and returns.

Next, Phoenix shares offer a dividend yield of close to 7.5% which is extremely enticing. This is higher than the FTSE 100 average of just 3%-4%. It also has a good record of consistent payout. Even in the face of the pandemic, it did not cut its dividend, which is an encouraging sign for me as a potential investor.

At current levels, Phoenix shares look good value for money on a price-to-earnings ratio of just 7. This indicates to me that a dividend stock like this is trading at less than expected levels and could be a shrewd addition to my holdings.

Finally, I like the look of Phoenix’s performance track record. After all, performance underpin returns and dividends. I am aware that past performance is not a guarantee of the future, however.

Overall, I believe Phoenix Group Holdings is an excellent dividend stock. I would add the shares to my holdings and expect them to boost my passive income stream for the foreseeable future.

The FTSE 250 is down around 13% over the past 12 months and that’s pretty reflective of the general downward track UK stocks have been on. And when share prices are down, dividend yields get bigger.

But the market will recover eventually. In fact, there are signs that it is already on its way up. And today I’m looking at two UK stocks with big dividends to buy before the next bull run.

After all, the yield is only relative to the price I pay for the stock, regardless of whether it goes up or down.

Phoenix Group

Right now, Phoenix Group (LSE:PHNX) is offering a 7.2% dividend yield. That’s pretty huge and a recent increase comes on the back of a strong year for the life insurance specialist. Phoenix has been slowly increasing dividend payments since 2018, and the rise announced in March was a 3% increase on 2021.

The company said it was also shifting its dividend policy. It’s now moving from “stable and sustainable” to a sustainable payout that “grows over time“. Prior to this, Phoenix Group had relied on mergers and acquisitions to fund payout increases.

Naturally dividends aren’t guaranteed, but Phoenix maintained its payouts during the pandemic. It also has reliable cash flows and a whopping 240 years of history.

The stock is down 4% over the past 12 months and this is part of the reason the dividend yield appears sizeable. The falling share price also belies the company’s performance over that period. Like much of the market, Phoenix Group has come under selling pressure this year.

With regards to long-term growth, the share price is down 6.8% over five years. So it’s not overly positive on that front. But the company, which buys legacy life insurance and pension funds that are closed to new business and manages them, has a track record of clever acquisitions and mergers to continue growing the business.

I feel Phoenix Group would be a good addition to my portfolio right now.

Vistry Group

Vistry Group (LSE:VTY) is down 25% over the past 12 months as investor outlook on the housebuilding sector sours. But that’s only served to push up the dividend yield. The yield currently stands at 6.7%.

The company is one of the fasting-growing in the sector. It recently announced that it expects pre-tax profit to be at the top end of market forecasts (£417m). Vistry highlighted that price rises were driving margins above full-year targets after a better-than-expected first half.

The 2022 projections put profit way above pre-pandemic levels and far above the £319m achieved last year. Vistry also has a strong order book and even claims that supply constraints are easing. Completions for the first six months of the year rose to 3,219, up from 3,126. Forward sales increased to £2.9bn from £2.7bn.

Interest rates are set to rise by 50 basis points today and that could slow demand for houses. That’s definitely a concern, but I think it’s already priced in when we look at the share price today. I already own Vistry shares but would buy more at today’s price.

There’s certainly no shortage of high-yielding shares. In fact, almost a fifth of FTSE 100 shares offer 5% or greater.

Top dividend shares

At the top of my list is a savings and retirement-focused business called Phoenix Group (LSE:PHNX). It offers a yield of 8%, and I’d buy these shares today.

But there are other factors to consider apart from just the yield. I’d want my top picks to have a decent track record of paying dividends. Ideally, I’d like to see some dividend growth too.

Phoenix receives a tick in the box for each of these points. It has been paying dividends for over a decade and has achieved six years of consecutive dividend growth. That’s impressive considering we’ve had to endure several recession fears in the past few years.

Bear in mind that dividends aren’t guaranteed. They’re reliant on business performance and management policy. There’s always a chance that the payment could be cut if earnings can’t keep pace. That said, it has predictable cash flows and a whopping 240 years of history behind it.

Income and growth

Next, I’d buy renewable energy provider SSE (LSE:SSE). It currently offers a 5% dividend yield. That’s certainly not the greatest available, but it’s still above average for the FTSE 100.

Many dividend shares offer excellent yields but have limited scope for share price gains. I reckon SSE offers both.

Renewable energy is in focus. Not just for environment reasons, but for energy security too. It has fast become an area of deep interest since the war in Ukraine started. And more countries are looking to diversify their energy sources.

SSE should benefit, in my opinion. As the UK’s leading generator of renewable electricity, it looks well-placed to capture this demand.

Bear in mind that there are risks it could be hit with windfall taxes as the energy crises deepens over the coming winter. That would depend on government policy and potentially public pressure.

Overall, I reckon SSE offers one of the best opportunities for income and growth in the FTSE 100.

Money money money

Next, I’m looking at financials. I’d snap up Lloyds Banking Group (LSE:LLOY) for its 5% dividend yield. Before the financial crisis of 2008, banks were popular dividend shares. They offered relatively high and reliable dividend streams. Are those times set to return?

Much has changed since those days and banks are far more resilient now. But many, including Lloyds, have returned to shareholder-friendly dividend policies.

I’m not considering Lloyds just for its dividend though. A backdrop of rising interest rates has made Lloyds shares far more attractive in recent months.

Banks can benefit tremendously when rates climb as their net interest income tends to rise. That’s the difference between the interest the bank earns by lending money and what it pays in expenses.

I would caution that higher interest rates can lead to a slower economy. Eventually, Lloyds could face higher loan defaults.

Overall though, Lloyds offer a combination of reliable dividends and potential share price growth. I’m a buyer.

I’m looking at three today, all of which I think look good value for income investors like me. And we’ll have interim updates from all of them during the month. Will good news help turn around their share price weakness?

Construction

First is Morgan Sindall (LSE: MGNS), with first half results due on 4 August. Morgan Sindall is one of the UK’s biggest construction groups, active in everything from affordable housing to infrastructure projects.

The shares put in a bit of a recovery in 2021, but they’ve gone off the boil a bit so far this year. And I think that leaves the stock on an attractive forward valuation. We’re looking at a forecast price-to-earnings (P/E) ratio of only a bit over nine, and dropping.

The forecast dividend yield is around 5% and rising. That’s not one of the biggest yields around, but it has one key characteristic that I like. The 2021 dividend was covered almost two and a half times by earnings.

That boosts my confidence that dividends, heavily cut for the pandemic year of 2019, could be in for a sustainable progressive run now.

Investment

The whole asset and investment management business has tanked of late, suffering cash outflow as investors shift their money elsewhere. To my mind, that’s left Abrdn (LSE: ABDN) looking cheap, after a share price fall of close to 50% over the past 12 months.

The drop has pushed the forecast Abrdn dividend yield up to a whopping 9%. There must be fears that such a high level might not be sustainable, especially with our current economic outlook.

But on 6 July, the company announced a new £300m share buyback to return surplus capital to shareholders. The first phase, of up to £150m, has already commenced. Yes, there are risks. But I see this as a vote of confidence in the company’s ability to deliver long-term income.

First-half results are due on 8 August.

Insurance

Moving to 22 August, we should know how the first half went for Phoenix Group Holdings (LSE: PHNX).

As an insurer, Phoenix is a little difference to most. It acquires legacy life insurance and pension assets that are closed to new business, and makes its money from managing them. It currently owns brands that include Standard Life and SunLife.

Phoenix has been generating strong cash from this business, and delivering progressive dividends. And after a weak year for the share price, forecasts now suggest a yield in excess of 8% this year, rising further after that.

Risks

All of these come with the risk that they’re in sectors likely to suffer more during an economic downturn than most. And I think share price weakness could continue in the second half of 2022.

And if August’s updates show any sign of dividend weakness, we could see dips. But, right now, I like the look of these as long-term income investments.

The stock market has slumped this year, with the exception of companies operating in resource sectors. But as share prices have fall, dividend yields grow, assuming the dividend payments remain the constant.

So I think now is a great time to shop around for income stocks as yields are inflated and the share prices offer plenty of headroom for growth.

It’s also worth remembering that if I buy a stock, and the share price goes up, my dividend yield will always be relative to the price I paid.

So, here are two income stocks I’d buy now before the stock market recovers, which I’m certain it eventually will!

Legal & General

Legal & General (LSE:LGEN) shares are down 10% over the year. The stock collapsed after the Russian invasion of Ukraine, but had been doing well prior to this.

The British multinational financial services and asset management company performed strongly in 2021. Legal & General raised its dividend in April after recording a huge 39% increase in annual pre-tax profits. Pre-tax profits came in at £2.49bn. Profit after tax jumped 28% to £2.05bn.

The current dividend yield is 7.6% and last year the coverage — a ratio that indicates the ability of a firm to pay the dividend — was a relatively healthy 1.85. For 2022, L&G declared a full-year dividend of 18.45p, up 5% on the year.

There may be some short-term challenges for business. The investment management segment is unlikely to perform well amid a cocktail of negative economic pressures and sky-high inflation. It’s also very exposed to the property market through its capital investment business. This sector could see some downturn in the coming months with interest rates remaining high.

But in the long run, Legal & General is a massive player in asset management and I think its positive brand reputation will likely prevent capital outflows and attract customers.

Down 20% over the past six months, I also think there’s plenty of headroom for growth when investor sentiment recovers.

Phoenix Group

Phoenix Group (LSE:PHNX) is a life insurance specialist that owns household brands like Standard Life, SunLife and ReAssure.

The stock is currently trading under 600p a share, far below its 52-week high of 702p. Like much of the market, it’s come under selling pressure this year.

2021 was a record year for the business with cash generation surpassing £1.72bn, while operating profits rose to £1.23bn. 

Following the earnings announcement, Phoenix Group recommended an increase to the final dividend by 3%, representing its first organic increase. The company said it was also shifting its dividend policy, moving from “stable and sustainable” to a sustainable payout that “grows over time“.

Previously, Phoenix Group had relied on mergers and acquisitions to fund payout increases.

One concern is the maturity of the businesses that Phoenix Group acquires. The company buys legacy life insurance and pension funds that are closed to new business and manages them. But it’s equally worth recognising that the firm has a solid record of savvy acquisitions and mergers to continue growing the business.

Phoenix Group is currently offering a very attractive 8.4% dividend yield.