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Phoenix‘s (LSE: PHNX) shares boast one of many highest dividend yields on the FTSE 100. The yield’s nudged as much as 8.5% right now (8 September) after traders gave a chilly reception to half-year outcomes. Shares in Phoenix Group Holdings, to make use of its full identify, are down 5% this morning, however I reckon the response could also be a bit harsh as there are many optimistic numbers in there.
I maintain this inventory and even after right now’s drop, I’m nonetheless sitting on an 18% share value achieve over the past yr. Add within the dividends, and my complete return is round 26%. With the yield now even juicier, I believe this may very well be my probability to purchase extra.
Prime UK revenue star
The board stated Phoenix was “firmly on observe” to hit its medium-term targets after first-half IFRS adjusted working income jumped 25% to £451m. Phoenix swung to a pre-tax revenue of £8m, a giant motion from final yr’s £669m loss.
Working money technology rose 9% to £705m. Its Solvency II surplus nudged as much as £3.6bn and the capital protection ratio climbed from 172% to 175%, near the highest of its goal vary.
CEO Andy Briggs additionally confirmed that the group would change its identify to Commonplace Life in March 2026, saying it could simplify operations and minimize duplication, whereas bringing its “most trusted model” to the fore. That is smart to me. The Commonplace Life identify continues to be recognised by many savers. Phoenix isn’t.
So why the downbeat response? Phoenix must maintain producing loads of money to fund its mighty dividend, and complete first-half money technology fell 17.5%, from £950m to £784m. This was 3% greater than forecast.
FTSE 100 high-yielder
Complete revenue was additionally down 30% to £8.6bn, though that quantity is risky and pushed by market circumstances. Regardless of these points, Phoenix nonetheless lifted its interim dividend by 2.6% to 27.35p per share. In one other plus, adjusted working revenue was 3% forward of expectations.
It’s value remembering that Phoenix manages round £280bn of property, to again up its insurance coverage liabilities. If markets wobble this autumn, as they typically do, Phoenix might take one other knock. So anyone contemplating benefiting from right now’s drop should settle for there could also be extra harm within the autumn. However that applies to virtually each inventory buy right now.
Lengthy-term case
The enterprise is steadily diversifying away from closed life insurance coverage books into rising pensions and financial savings operations. It must maintain driving new sources of income, to fund that payout. Although money technology dipped, I believe the payout appears to be like safe for now.
These are shaky occasions for the broader inventory market, and Phoenix could also be risky. The hazard is that if the board does maintain or trim the dividend in some unspecified time in the future, that would deal a giant beneath to the share value.
Phoenix might want to maintain chopping prices and discovering contemporary areas of growth to keep up the movement of money. However given the sky-high dividend yield, I believe revenue seekers may nonetheless contemplate shopping for. The shares go ex-dividend on 2 October and I plan to up my stake earlier than that date and seize that interim dividend.
