As my retirement edges nearer, I’m constructing a portfolio of FTSE 100 dividend shares to pay me a passive revenue once I cease working.
I’m making an attempt to strike a stability between shares that give me a super-high yield at the moment, and people with decrease yields however larger share value development prospects.
Nonetheless, if I used to be retiring tomorrow and drawing my dividends from day one, I’d goal to max out my revenue with these two ultra-high yielders.
Aiming for revenue
The primary is FTSE 100 insurance coverage conglomerate Phoenix Group Holdings (LSE: PHNX). It presently gives the second-biggest forecast yield on the index, a fairly gorgeous 10.4% a yr. Solely Vodafone Group beats it, however not for lengthy. The telecoms big will slash its shareholder payout in half subsequent yr.
Which begs the next query: will Phoenix comply with swimsuit? Double-digit yields hardly ever show sustainable for lengthy.
I purchased Phoenix shares not too long ago, and was assured the dividend would survive at present ranges. Now I’m getting a little bit edgy, with shareholder payouts coated simply 0.9 instances by earnings. Historically, cowl of two instances is seen as perfect.
The Phoenix share value is down 25.89% over 5 years and 12.32% over one yr. It’s additionally didn’t take part within the latest FTSE 100 rally. Plainly traders share my misgivings, too.
Nonetheless, Phoenix generated greater than £2bn of money in 2023, beating its £1.8bn goal (which had itself been upgraded). A lot of that got here from newly generated enterprise, too. Its capital-light pensions and financial savings enterprise, and its retirement options arm, are each doing very properly.
Phoenix additionally boasts a stable stability sheet and boosted its working earnings by 13% to £617m. It’s turning round 2022’s loss properly.
The board hiked the ultimate 2023 dividend by 2.5% to 26.65p per share, giving a complete payout of 52.65p. It’s an excellent revenue stream and definitely worth the danger concerned. I could also be making a foul name right here however so be it.
I’d take one other likelihood and double down on the monetary companies sector by topping up one other portfolio favorite, Authorized & Common Group (LSE: LGEN).
On the point of retire
That is one other implausible FTSE 100 excessive yielder, forecast to pay me revenue of 8.6%. In fact, that isn’t assured — dividends by no means are. Cowl is skinny right here, too, at simply 1.2. Safer than Phoenix however not completely safe.
The Authorized & Common share value has additionally been disappointing. It’s down 9.59% over 5 years, and up simply 6.24% over 12 months. But it’s the revenue I’m after right here.
2023 was a tricky yr with working revenue of £1.67bn falling wanting company-compiled forecasts of £1.75bn. Authorized & Common’s asset administration arm was hit by outflows as inventory markets struggled and clients sought larger, safer returns from money and bonds.
Authorized & Common has been hit by the ‘larger for longer’ rate of interest mantra, as has Phoenix. Nonetheless, I’m calculating they are going to come into their very own when charges are lastly minimize, at which level bond yields and financial savings charges will inevitably decline. Then these super-high yielders will look much more engaging.
Regardless of the dangers, I nonetheless suppose they’re an excellent option to generate the second revenue I’d want if I did cease working tomorrow.
