It looks like investors are suddenly hungry for passive income rather than share price growth.
Right now, the most purchased share among UK investors isn’t super-soaraway Rolls-Royce or hardy perennial Lloyds Banking Group, but insurance company Standard Life (LSE: SDLF).
It was the number one stock on the AJ Bell platform last week, accounting for 6.43% of purchases. That also puts it ahead of Google-owner Alphabet, SpaceX and Nvidia. Quite impressive for a company that’s been under the radar for years, and has only just rebadged itself from the lesser-known Phoenix Group.
Yet it can’t have been flying so far under the radar, because I bought it myself three years ago. The shares have more than doubled in that time, from 445p to 945p, and paid a heap of dividends along the way.
Why I bought the shares
Back in 2023, the stock yielded 10% at times. I decided the dividend was sustainable, something that isn’t always the case when income gets this high. But the board had increased shareholder payouts in eight of the previous nine years, which showed willing.
The shares looked cheap back then, with a price-to-earnings (P/E) ratio of around seven or eight. Today, it’s a much higher 17.4x. The forward P/E, based on next year’s earnings expectations, is a more comfortable 10.2.
The income isn’t what it was, but the stock is still forecast to yield 6.07% this year, rising to 6.21% in 2027. The board plans to increase shareholder payouts by 2% a year. That’s a slight concern as the growth rate is below inflation and means the real value of the income could gradually fall.
So why are investors suddenly buying it? The last results were published on 7 September, so that’s not the reason. For the record, they showed a 25% increase in first-half adjusted operating profit to £563m. Operating cash generation rose 6% to £745m.
The £2bn acquisition of Aegon UK may be another attraction. It should make Standard Life a much bigger force in the pensions and savings market, bringing its customer base to around 16m and creating opportunities for cost savings and growth.
It’s also expanding into the fast-growing pension risk transfer market, where companies take responsibility for the pension obligations of employers.
Is the AI sell-off having an impact
I suspect there’s a wider story here. As the AI bubble rattles technology shares, an old-school business with a strong customer base and a track record of delivering income and growth suddenly looks more attractive. After a strong run, the Lloyds yield is down to 3.8%, while Rolls-Royce is both expensive and volatile
One risk is that investors are buying Standard Life precisely because it has done so well. Past performance is no guarantee of future returns. A stock market crash could reduce the value of the £333bn of assets it manages, hitting fee income. The Aegon deal also brings integration challenges. Standard Life’s shareholder capital coverage ratio slipped to 169% in the first half, from 176% at the end of 2025.
I still think it’s well worth considering with a long-term view. For those who want an even higher rate of income, this FTSE 100 income stock yields 7%….
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Harvey Jones owns shares in Lloyds, Rolls-Royce and Standard Life.
This story originally appeared on Motley Fool
