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When looking down one of the best earnings shares, a whole lot of traders are tempted by the promise of excessive yields. Typically, these beneficiant payouts aren’t sustained, leading to shareholders being lured right into a entice. However each every now and then, an exception emerges. And traders get the uncommon likelihood to lock in each a excessive payout and a protracted observe document of dividend climbing exercise.
One such instance of this could possibly be Phoenix Group Holdings (LSE:PHNX). The insurance coverage big provides a formidable 8.6% yield proper now, comfortably lined by increasing working money flows which have led to a decade of payout hikes.
So is now the time to think about including this earnings inventory to a portfolio?
Inspecting the chance
As a fast crash course, Phoenix is an evolving life insurance coverage enterprise. Traditionally, it specialised find and shopping for closed books of in-force life insurance coverage and pension insurance policies, letting them run to generate a predictable money movement. However in newer years, it’s shifted its core technique to change into a extra full insurance coverage enterprise with a various assortment of pension and annuity merchandise.
Whereas this transfer launched a whole lot of execution and aggressive dangers, thus far, Phoenix appears to have risen to the problem, delivering strong monetary efficiency that has continued to assist dividend progress.
By timing the transition with a interval of rising rates of interest, Phoenix has loved capital momentum that has continued into 2025.
In flip, working money flows have expanded by 9% to £705m throughout the primary half of the 12 months, greater than sufficient to cowl the £274m in dividends paid. And with a robust annuities pipeline, analysts proceed to be optimistic for bigger shareholder rewards over the following two years.
What may go mistaken?
Whereas Phoenix is performing admirably in the present day, some notable macroeconomic danger components may interrupt the method. Increased rates of interest have been a terrific boon. However with the Financial institution of England beginning to ease its financial coverage by slicing charges, the gravy prepare appears to be slowing.
Consequently, there are rising issues of harder comparables on the horizon for each income and, extra importantly, money movement.
To administration’s credit score, efforts to ship price financial savings and scale back stability sheet leverage are anticipated to offset among the impression of looming headwinds. However whether or not that can be adequate to keep up the dividend climbing streak stays a major supply of uncertainty.
The underside line
All issues thought-about, Phoenix Group seems to be well-positioned in the present day. At a ahead price-to-earnings ratio of 9.4, the earnings inventory doesn’t commerce for a demanding valuation. However very like its substantial dividend yield, this can be a reflection of the macroeconomic danger connected to this enterprise.
Such alternatives are at all times value investigating. However traders should take into account fastidiously whether or not the excessive yield is well worth the macro dangers. Personally, I’m different earnings shares for my portfolio.
