This FTSE 100 stock pays a 10.2% dividend yield

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The FTSE 100 offers access to a host of dividend stocks. And Phoenix Group (LSE:PHNX) is among the very top dividend-payers on the index, with the dividend yield now sitting at 10.2%.

I’ve held a position in Phoenix Group for some time. It’s not been too good to me, with the share price falling 20% over a year and 30% over three years. So, is now a good time for me to buy more? Let’s explore.

A dividend king

Phoenix Group is among the top dividend picks on the FTSE 100 in my opinion. So, why is that?

Well, let’s start with the history. Phoenix Group has a stellar track record of paying and increasing its dividend payments.

In fact, the insurance giant has registered dividend growth in each of the last 14 years. That’s truly impressive, although it falls short of what is required of a Dividend Aristocrat — a company with 25 years of unbroken and improving dividend payments.

While the dividend payments have only grown by 2%-3% on average in recent years, that’s still a positive sign. Under normal circumstances, that’s inflation beating.

Dividend coverage is fairly strong. The ratio was 1.6 in 2022, which says the company could have paid the stated dividends 1.6 times from net earnings.

A ratio of two is normally considered a benchmark for strong coverage, but it’s worth making exceptions depending on the business type.

Insurance companies have very strong cash flows. That’s because policyholders, like myself, or anyone else with car insurance, home insurance, etc, pay their premiums regularly.

In turn, this means the business is never, or rarely, in short supply of the cash that’s used to pay the dividends.

No thrills

Phoenix Group is something of a no-thrills business. The UK economy isn’t overly dynamic at this moment and the insurance sector is rather mature. It’s also worth remembering that there are disrupting parties, fintechs, in this space that could ruffle a few feathers.

Nonetheless, the Phoenix Group has been performing well. It recently announced that it had secured £1.5bn of new business long-term cash generation in 2023, thus achieving its 2025 target two years early.

This was fueled by the group’s impressive performance over the past 12 months, during which new business net fund flows reached £7bn, an 80% increase on the previous year.

Moreover, the business continues to benefit from trends in the Bulk Purchase Annuity market. The company noted that it registered seven BPA transactions during the latter half of 2023, covering around £2.8bn of premiums.

Personally, I’m certainly considering increasing my position in Phoenix Group. I don’t think it deserves to be as overlooked as it is. And it could be a good time to lock in a even larger dividend/improve my weighted buying price.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p 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 8.5%, 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

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James Fox has positions in Phoenix Group Holdings. 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.