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One FTSE 100 dividend revenue inventory is scorching proper now. The corporate in query is insurer Phoenix Group Holdings (LSE: PHNX) and I’m thrilled by its progress, as a result of I’ve loaded up on the insurer over the past 15 months.
My causes for initially shopping for the inventory had been fairly simplistic. I used to be dazzled by its sky-high yield.
After I first purchased Phoenix in January and March 2024, it was yielding simply over 10%. With a price-to-earnings (P/E) ratio of round seven, I puzzled why everybody else wasn’t filling their boots. Was I lacking one thing?
A fast take a look at the dividend report confirmed eight will increase within the earlier 10 years. Annual dividend development could possibly be modest, however given the excessive start line, that didn’t fear me an excessive amount of.
Stable whole return
The Phoenix share value has now climbed 25% prior to now yr. Okay, that’s not crimson scorching for a whizzy development inventory, however it’s fairly toasty for this sector.
Having averaged up in March this yr, my very own private share value acquire is 16%. However with dividends reinvested, that climbs to 33%. These are early days although.
There’s no assure the shares will proceed at their present lick. Measured over 5 years, the Phoenix share value is up a modest 6.5%. Loyal buyers will nonetheless have bagged loads of dividends although.
Its 2024 outcomes, printed on 17 March, underlined the power of the enterprise. Working money technology jumped 22% to £1.4bn, two years sooner than deliberate. The board expects to generate extra money of £1.1bn throughout 2024-26. In order that dividend nonetheless seems to be safe to me.
Hidden challenges
Phoenix nonetheless faces hurdles. Curiosity-rate volatility can distort the worth of its long-term annuity liabilities, so a sudden transfer decrease might drive recalculations that tighten the dividend outlook.
The group was constructed on working closed life insurance coverage and pension funds, however should additionally discover recent sources of money to maintain its payout. That’s no picnic in a mature and aggressive market the place any new alternative attracts rivals like flies. Additional acquisitions appear probably, however integrating new companies carries execution threat.
A rumoured rebrand to the Normal Life title could enhance retail investor consciousness, however such tasks can distract administration from core operations.
The yield has eased from final yr’s highs to round 8.58%, but that continues to be exceptionally beneficiant. It might solely rise by round 2% a yr to maintain the payout coated. That tempo lags inflation proper now, so it’s falling in actual phrases. If that continues, there’s a threat buyers might drift away.
One other concern is that inflation might drive rates of interest again up, bettering returns on money and bonds. That would hit demand for high-dividend shares like this one.
Lots to love
The 16 analysts serving up one-year share-price forecasts for Phoenix have produced a median goal of 633p. That’s just about the place the share stands right this moment, so in the event that they’re proper, I can’t stay up for a lot development this yr.
I can stay up for that dividend although.
Traders contemplating shopping for Phoenix right this moment will word that the P/E ratio is now stands at 13.8. Not as low-cost because it was, however nonetheless first rate worth.
I feel that is nonetheless value contemplating for passive revenue seekers, however they need to deal with any share value development as a bonus, quite than one thing that’s baked in.
