Here’s how I could invest £5k in a Stocks and Shares ISA to get £450 income a year

I’m looking for it FTSE 100 companies to generate tax-free income inside my Stocks and Shares allowance ISA, and there are some startling yields out there.

Close the life assurance fund consolidator Phoenix Group Holdings (LSE: PHNX) currently returns 8.91% annually, the second highest in the index.

Phoenix drowned

Even better, the income is tax-free in the annual ISA allowance. If I invest £5,000 in current returns I will earn £455.50 in the first year alone. Any share price growth will be exceeded (although Phoenix could easily fall due to the current uncertainty). But can these results last?

Phoenix built its business by buying life insurance and pension funds, then managing them for members. It’s not exciting, but the cost continues to play.

It currently has more than 12 million policyholders and has grown by acquiring businesses as well. It currently has Standard Life, ReAssure, and Sun Life of Canada UK.

This has ended up costing the stock price, though, which fell 13.63% over a year, and 21.86% over five.

It fell 12% last week after posting a pre-tax loss of £2.26bn on Monday. This led to a loss of £688m in the previous year. What’s going on here?

One problem with legacy funds is that they eventually disappear. Another is that they still experience the volatility of the stock market, and every fund manager struggled last year. Phoenix saw assets under management fall from £310bn to £249bn, which reduced management fees on a percentage basis.

But Phoenix still raised £1.5bn, just beating its own target. It is also sitting on £12.1bn of Group in-force long-term free cash, which will be released over time to ensure its “Sustainable growing dividends over the long term”.

Dividends are safer than they look

This has allowed CEO Andy Briggs to raise its dividend by 5%, which increases my confidence in its sustainability. Shareholder payouts have now increased for 14 consecutive years, including the pandemic. While dividends are never guaranteed and can be cut at any time, this one seems safer than most. It is guaranteed 1.6 times by earnings.

In a further boost, Phoenix said new business acquired during the year should generate long-term cash inflows of £1.2bn.

It has a healthy balance sheet as well, with a Solvency II Shareholder Capital Coverage Ratio of 180%, above the target range of 140-180%. This gives “significant capacity to invest towards growth”Briggs said.

You may need capital strength with markets on track for another bumpy year as banking stocks rise.

Personally, I like to buy stocks after they sell. Phoenix is ​​trading at seven times the low price, though I wouldn’t buy it if it was going to rocket. Stocks can easily fall or go nowhere for years. I will treat any growth as a bonus.

However, I buy FTSE 100 income shares like this for the long term, a minimum of 10 years, which gives time for dividends to increase and grow. The current yield will double my money in just over eight years.

I have been looking for Phoenix for several years. Now I think it’s time to buy.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content in this article is provided for informational purposes only. It is not intended to be, nor is it, any form of tax advice. Readers are responsible for doing their due diligence and seeking professional advice before making any investment decisions.