Investing for company dividends is by far my favourite way to try to earn some long-term passive income.

Right now, there aren’t any bigger FTSE 100 ones on offer than the forecast 10.85% dividend yield from Phoenix Group Holdings (LSE: PHNX). That could mean £2,170 in my pocket this year if I put an ISA allowance of £20k into the stock.

But, attractive though a shiny dividend yield might be, there’s always another side to the coin. The share price is down 30% in the past five years. So the total return has been lower.

Buying opportunity

Still, for those of us who want the dividend income and don’t plan to sell our shares for at least another decade, share price weakness might not be a bad thing.

If it’s only a short-term dip, it can even be a bonus. That’s because we could bag more shares for the same money now, and lock in those big yields.

But, how do we balance the temptation of a big yield with the risk of further share price falls? Or worse, the chance of a dividend cut?

We can never guarantee a dividend. In fact, another of the FTSE 100’s double-digit whoppers, the 10.5% expected from Vodafone, is going to be cut in half in 2025. The company has already told us that.

Check the business

My main way to lower my risk is with diversification. I might spread my money across, say, 10 stocks in different sectors. And that should help buffer me against any individual company problems.

It does mean I’ll never earn 10% in dividend cash from my Stocks and Shares ISA as a whole. There just aren’t enough big ones to cover the diversity I’d want. But I’d rather settle for a bit less income if it means less worry.

Saying that, there’s another way I check my risks. And that’s to understand the business I’m buying, and work out whether I think it can keep the dividends going.

Solid business

In the case of Phoenix Group, I see a mix of safety and uncertainty.

Phoenix specialises in acquiring and managing closed life and pension funds. And that’s provided the cash flow needed to keep the dividends going for years.

But there are only so many closed funds around, and it’s not a growth business. So Phoenix has been moving into selling new products direct to customers.

It looks good so far, but increasingly it will be competing with firms like Aviva and Legal & General. And I know at least one of my Motley Fool colleagues doesn’t rate its chances in a battle with the established giants.

Competition

Still, those competitors also pay good dividends, if not quite as big.

And at the interim stage, the company did say it’s “on track to deliver our financial targets which support our progressive and sustainable dividend“.

I wouldn’t put all my cash into Phoenix, for sure. But I might just find a free slot for it in my ISA.