I all the time suppose one factor once I get a dividend share payout. It doesn’t matter what occurs to the share price, they’ll’t take the money again.

If I purchase shares with an 11% yield, I might have my a refund in a bit over 9 years. After which the share price itself is a bonus.

You don’t get that with these ‘jam tomorrow’ progress inventory hopefuls.

Dividend cuts?

That’s a little bit of a perfect, I do know, and it may not work out fairly like that. Future dividends aren’t assured, and may be minimize when the money isn’t there.

Vodafone, for instance, affords a forecast dividend yield of 10.9%. However the telecoms big plans to slash it in half subsequent 12 months, as because it refocuses its technique.

The 11% I’m right here is from Phoenix Group Holdings (LSE: PHNX), which acquires and manages closed insurance coverage and pension funds.

The yield as a % is that this good partly as a result of the Phoenix share price has fallen 30% prior to now 5 years.

Dividend progress

Nonetheless, whereas the share price weak spot would possibly flatter the yield, the dividend has been rising steadily in money phrases.

And that ought to proceed, in keeping with the agency’s FY outcomes replace in March, when CEO Andy Briggs introduced a “new progressive and sustainable dividend policy.”

We didn’t get a lot in the best way of element, however the board did say it “will proceed to prioritise the sustainability of our dividend over the very long run.“

Will it occur?

Now, none of that is any type of assure. And on the first signal of any new monetary pressures, this might all change and the dividend might be minimize on the drop of a hat.

Future plans rely on with the ability to develop belongings, which in flip ought to increase earnings and money circulation. Proper now, the corporate is bullish.

However monetary companies had been optimistic earlier than the 2008 banking crash. And once more earlier than Brexit, and earlier than Covid…

So anybody contemplating shopping for Phoenix Group shares now ought to make certain they’re proud of all of the dangers.

Reinvest

And, to profit from a prime dividend inventory like this, we have to add extra threat. It means shopping for new shares with the dividend money every year, which might critically increase the facility of compounding.

Keep in mind once I stated that dividends can’t be taken again as soon as they’re paid? Effectively, we lose that security after we plough the money again into new shares… which might fall.

Nonetheless, if we take that method with Phoenix Group, the dividend yield stays at 11%, and we preserve reinvesting it?

Effectively, each £1,000 we begin with at present might flip into £8,000 in 20 years. Or a surprising £22,000 in 30 years.

Diversify

I don’t actually count on to get that return. For one factor, I’d maintain a diversified portfolio and that will deliver down my common return.

However I nonetheless charge high-yield dividend shares like this as my finest probability for constructing long-term wealth.