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

With robust progress and a dependable 9% yield, I’m but to discover a inventory that beats Phoenix Group (LSE: PHNX). It’s one of many highest-yielding shares on the FTSE 100 and is up 20% thus far this yr.

The UK insurance coverage sector basically is doing properly, with each Aviva and Admiral Group additionally posting 20%+ positive aspects. Nevertheless, neither presents such a excessive yield. Authorized & Common, in the meantime, has a relatively excessive yield however has suffered weak price efficiency this yr.

Dedication to shareholder returns

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

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

Nevertheless, it’s important to additionally contemplate 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 yr. This downturn was attributed to elements equivalent to market volatility and regulatory adjustments impacting the insurance coverage trade.

Furthermore, the corporate’s dividend payout ratio is -48.25% as a result of earnings are adverse and don’t cowl dividend payouts. Whereas it has substantial money reserves to mitigate any fast 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 revenue progress, with forecasts predicting a decline from 5.8% in 2024 to 4.4% in 2025 for all times insurance coverage premiums. Such tendencies may 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 protracted strategy to supporting its dividend coverage and offering a buffer towards 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% improve 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 growth 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 yr, sustaining a steady Solvency II leverage ratio of 36%. Plans are in place to scale back this ratio to roughly 30% by the tip 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 revenue technique. As such, I imagine that traders with an identical aim can be sensible to think about it.