Just because a dividend stock has a surprisingly high yield doesn’t automatically mean it’s the highest yielding stock. Often it’s the other way around.

For many people, a very high yield is a warning sign. Especially when it hits double digits. But I’m betting on it FTSE100 policyholder Phoenix Group Holdings (LSE: PHNX) is an exception.

I bought the stock in both January and March because I thought the dividends were likely to be sustainable. However, I can’t say this with certainty.

High income

City analysts seem positive. Today, Phoenix has a trailing yield of a staggering 10.94%, but that’s just the beginning. It is forecast that in 2024 the rate of return will be 11.2% and in 2025 it will escalate to 11.5%. One way to check if the returns are sustainable is to check the recent dividend growth per share. Here’s what the charts say.

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In 2019, Phoenix increased its dividend per share by 1.74% to 46.8p. It then increased its payouts in each of the following four years. In the last three, the percentage increases were clearly higher and amounted to 2.95%, 3.89% and 3.64%.

So instead of nervously cutting back on payments, management is increasing them at a faster pace.

Investors need some sort of reward for holding the stock, and so far it hasn’t resulted in a rise in share prices. Phoenix’s share price is down 12.6% over the past year and 30.66% over five years.

But management couldn’t escalate payments if it wasn’t generating enough cash. And the good news is that yes. I’ll say it again: what the charts say.

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In 2019, cash flow decreased by 1.92%. They are growing at an increasingly faster rate, reaching 1.49% in 2023.

Cash flow looks robust

In fact, last year was a breakout year for Phoenix. His target was £1.8 billion in cash. It broke down to the tune of £2 billion. It also boasts a solid balance sheet, and its Solvency II capital ratio is 176%. This is near the high end of the target range of 140% to 180%.

Analysts are bullish, predicting that the 2023 dividend per share of 52.65 pw will escalate to 54.3 pw in 2024, 56.1 pw in 2025 and 57.5 pw in 2026. Now I’m a little happier due to the purchase of shares.

Phoenix could get a re-rating when the Bank of England finally starts cutting interest rates. This will impact savings rates and bond yields, and the dividend will look even more attractive.

I can’t live on dividends alone. At some point I would also like to see some share price growth, but in this case the prospects are a bit more uncertain.

JPMorgan has just cut its target price on Phoenix shares from £5.25 to £5. Today the share price is 4.81p. There is not much growth potential there.

For now, I will take comfort in my income. I will reinvest every penny I receive to buy more Phoenix shares, and hopefully one day the market will agree with my point of view and the stock will become more popular. Crossed fingers!