£20,000 on this FTSE 100 inventory might get me £2,170 passive revenue per 12 months

Investing for firm dividends is by far my favorite technique to attempt to earn some long-term passive revenue.

Proper now, there aren’t any greater FTSE 100 ones on provide than the forecast 10.85% dividend yield from Phoenix Group Holdings (LSE: PHNX). That might imply £2,170 in my pocket this 12 months if I put an ISA allowance of £20k into the inventory.

However, enticing although a shiny dividend yield may be, there’s all the time one other aspect to the coin. The share worth is down 30% previously 5 years. So the entire return has been decrease.

Shopping for alternative

Nonetheless, for these of us who need the dividend revenue and don’t plan to promote our shares for no less than one other decade, share worth weak point won’t be a foul factor.

If it’s solely a short-term dip, it might even be a bonus. That’s as a result of we might bag extra shares for a similar cash now, and lock in these large yields.

However, how can we stability the temptation of a giant yield with the chance of additional share worth falls? Or worse, the prospect of a dividend minimize?

We are able to by no means assure a dividend. Actually, one other of the FTSE 100’s double-digit whoppers, the ten.5% anticipated from Vodafone, goes to be minimize in half in 2025. The corporate has already informed us that.

Examine the enterprise

My fundamental technique to decrease my threat is with diversification. I’d unfold my cash throughout, say, 10 shares in several sectors. And that ought to assist buffer me in opposition to any particular person firm issues.

It does imply I’ll by no means earn 10% in dividend money from my Shares and Shares ISA as a complete. There simply aren’t sufficient large ones to cowl the range I’d need. However I’d quite accept a bit much less revenue if it means much less fear.

Saying that, there’s one other method I verify my dangers. And that’s to grasp the enterprise I’m shopping for, and work out whether or not I feel it might maintain the dividends going.

Strong enterprise

Within the case of Phoenix Group, I see a mixture of security and uncertainty.

Phoenix specialises in buying and managing closed life and pension funds. And that’s supplied the money circulate wanted to maintain the dividends going for years.

However there are solely so many closed funds round, and it’s not a progress enterprise. So Phoenix has been transferring into promoting new merchandise direct to clients.

It seems good thus far, however more and more it will likely be competing with companies like Aviva and Authorized & Common. And I do know no less than one among my Motley Idiot colleagues doesn’t fee its possibilities in a battle with the established giants.

Competitors

Nonetheless, these opponents additionally pay good dividends, if not fairly as large.

And on the interim stage, the corporate did say it’s “on observe to ship our monetary targets which assist our progressive and sustainable dividend“.

I wouldn’t put all my money into Phoenix, for certain. However I’d simply discover a free slot for it in my ISA.