Is today’s market turmoil a brilliant opportunity to get a high second income from dividends?
Stock market volatility is always unsettling but it can also be a brilliant opportunity to target an even higher second income from FTSE 100 dividend shares.
Falling share prices automatically drive up dividend yields, offering long-term investors the chance to lock into better returns.
There are risks though. Today’s sell-off has been driven by Donald Trump’s trade tariffs, which threaten company profits and endanger their dividends.
But for far-sighted investors who understand and accept the risks, the confusion might just open the door to an increased passive income stream.
Shares fall, yields rise
One stock that has weathered recent market turbulence is life insurer Phoenix Group Holdings (LSE: PHNX). It has now risen about 22% over the past year.
Today, it offers one of the highest dividend yields on the FTSE 100 at a stunning 9.2% on a trailing basis. This is a substantial income stream, roughly double what can be achieved on even the best savings rates.
Once share price growth is included, the total return is around more than 30%. However, it’s important to remember that capital is at risk with shares. Income isn’t guaranteed either.
As a UK-focused entity, its core insurance and retirement businesses are largely insulated from trade disputes. Yet there could be knock-on effects.
Phoenix manages around £280bn of assets to protect against insurance risks, and market falls will dent their total value.
On the plus side, with interest rates likely to fall, many investors are turning back to UK dividend shares, tempted by high yields and attractive valuations.
The Phoenix share price also rises
2024 financial results were encouraging. Phoenix generated £1.4bn of operating cash, a 22% rise, hitting its 2026 target two years early.
Management lifted its three-year cash generation target to £5.1bn, up from £4.4bn. Adjusted operating profits rose 31% to £825m, with stronger contributions from pensions, savings and retirement solutions.
The board is committed to delivering a sustainable passive income stream. However, I don’t expect big annual increases. The 2024 dividend was increased by a modest 2.6%, for example. Given the sky-high yield, it’s hard to complain.
Any suggestion that the dividend is under threat would be a huge blow, and could also hit the share price as this is the main reason investors buy the stock. But I still think this one is worth considering.
The FTSE 100 has plenty of shares like these
Stock market volatility can be unnerving, but it also provides moments when long-term investors can find rare opportunities worth considering like this one.
Phoenix Group is just one example, I could name plenty more top FTSE 100 dividend stocks that look more attractive today, provided investors take a long-term view.
Nobody has any idea what Trump will do to stock markets over the months ahead, so investors need to be both brave and patient.
Patience is always required with dividend stocks, which don’t make people rich overnight. Instead, the benefits compound over time, with reinvested dividends buying more stock, which pay more dividends, in a virtuous circle.
Still, for investors prepared to ride out short-term storms, today’s worries may end up being remembered as a brilliant time to lock in a growing second income. Time will tell.
The post Is today’s market turmoil a brilliant opportunity to get a high second income from dividends? appeared first on The Motley Fool UK.
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Harvey Jones has positions in Phoenix Group Plc. 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.
