Up 20% with a 9% yield! This stock remains my top passive income earner

I’ve been looking excessive and low over the previous 12 months for the highest-yielding UK shares for my passive income portfolio. Whereas I’ve had some success in my mission, one stock remains the top earner in my portfolio.

With sturdy progress and a dependable 9% yield, I’m but to search out a stock that beats Phoenix Group (LSE: PHNX). It’s one of many highest-yielding shares on the FTSE 100 and is up 20% up to now this 12 months.

The UK insurance coverage sector generally is doing effectively, with each Aviva and Admiral Group additionally posting 20%+ positive factors. Nevertheless, neither presents such a excessive yield. Authorized & Common, in the meantime, has a comparatively excessive yield however has suffered weak value efficiency this 12 months.

Dedication to shareholder returns

Regardless of a rocky financial local weather rattled by quite a few geopolitical occasions not too long ago, Phoenix remains devoted to delivering returns to shareholders. This makes it a compelling stock to contemplate for income-focused traders. As a stalwart within the UK insurance coverage sector, the corporate has lengthy supplied a horny dividend coverage.

Since introducing dividends in 2009, they’ve elevated yearly at a mean charge of two.91%. It doesn’t fairly have the long-running and spectacular monitor file of Authorized & Common, nevertheless it appears to be heading that means.

Nevertheless, it’s important to additionally take into account the potential dangers inherent in its monetary construction and market dynamics.

Troubling instances

In 2024, the group reported a internet lack of £1.12bn, a stark distinction to the £34m revenue within the earlier 12 months. This downturn was attributed to elements comparable to market volatility and regulatory modifications impacting the insurance coverage trade.

Furthermore, the corporate’s dividend payout ratio is -48.25% as a result of earnings are unfavorable and don’t cowl dividend payouts. Whereas it has substantial money reserves to mitigate any rapid considerations, it might wrestle to maintain dividends if efficiency doesn’t enhance.

The broader financial atmosphere additionally poses challenges. The UK’s insurance coverage sector is experiencing a deceleration in premium income progress, with forecasts predicting a decline from 5.8% in 2024 to 4.4% in 2025 for all times insurance coverage premiums. Such developments might affect the corporate’s income streams and profitability.

One the plus aspect, its working money technology reached £1.4bn in 2024, surpassing its 2026 goal two years forward of schedule. This goes a lengthy technique to supporting its dividend coverage and offering a buffer in opposition to financial uncertainties.

Strategic enterprise developments

A key attraction for me is promising variety of enterprise developments fuelling the insurer’s progress technique.

Regardless of posting a £1.12bn loss in 2024, it loved a 31% enhance in adjusted working revenue of £825m, pushed by a 34% rise in retail gross inflows to £5.1bn. Such progress underscores the effectiveness of its three-year technique centered on sustainable and worthwhile enlargement in each Pensions & Financial savings and Retirement Options segments.

Much more spectacular is its proactive strategy to debt administration. It paid off £250m over the previous 12 months, sustaining a secure Solvency II leverage ratio of 36%. Plans are in place to scale back this ratio to roughly 30% by the top of 2026, reflecting a prudent capital allocation technique.

General, the above elements make me really feel assured that Phoenix Group will proceed main my passive income technique. As such, I consider that traders with a related objective can be smart to contemplate it.