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One FTSE 100 dividend revenue inventory is sizzling 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 have 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 questioned 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.
Strong whole return
The Phoenix share value has now climbed 25% previously 12 months. Okay, that’s not crimson sizzling for a whizzy development inventory, but it surely’s fairly toasty for this sector.
Having averaged up in March this 12 months, my very own private share value achieve 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, revealed on 17 March, underlined the energy of the enterprise. Working money era 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 may power recalculations that tighten the dividend outlook.
The group was constructed on operating closed life insurance coverage and pension funds, however should additionally discover contemporary 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 doubtless, however integrating new companies carries execution danger.
A rumoured rebrand to the Normal Life title could increase retail investor consciousness, however such initiatives can distract administration from core operations.
The yield has eased from final 12 months’s highs to round 8.58%, but that is still exceptionally beneficiant. It might solely rise by round 2% a 12 months to maintain the payout lined. That tempo lags inflation proper now, so it’s falling in actual phrases. If that continues, there’s a danger buyers may drift away.
One other concern is that inflation may drive rates of interest again up, enhancing returns on money and bonds. That would hit demand for high-dividend shares like this one.
A lot 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 at this time, so in the event that they’re proper, I can’t sit up for a lot development this 12 months.
I can sit up for that dividend although.
Traders contemplating shopping for Phoenix at this time will be aware that the P/E ratio is now stands at 13.8. Not as low-cost because it was, however nonetheless respectable worth.
I believe that is nonetheless value contemplating for passive revenue seekers, however they need to deal with any share value development as a bonus, relatively than one thing that’s baked in.
