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.
The post I’d buy 3,559 shares of this FTSE stock for a £150 monthly income appeared first on The Motley Fool UK.
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Roland Head 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.