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Simply because a dividend share comes with a mind-bogglingly excessive yield doesn’t mechanically make it a high earnings inventory. Usually, the reverse is true.
Many see an ultra-high yield as a warning sign. Particularly when it hits double digits. However I’m betting that FTSE 100 insurer Phoenix Group Holdings (LSE: PHNX) is an exception.
I purchased the inventory each in January and March as a result of I felt its dividends had been most likely sustainable. I can’t say that for certain, although.
Sky-high earnings
Metropolis analysts appear optimistic. Right now, Phoenix has a trailing yield of a staggering 10.94%, however that’s simply the beginning. It’s forecast to yield 11.2% in 2024, rising to 11.5% in 2025. A technique of checking whether or not a yield is sustainable is by taking a look at current dividend per share progress. Right here’s what the charts say.
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In 2019, Phoenix enhance its dividend per share by 1.74% to 46.8p. It then elevated payouts in every of the following 4 years. Within the final three, the share will increase had been notably larger at 2.95%, 3.89%, and three.64%.
So quite than nervously trimming funds, administration has been rising them at a sooner tempo.
Buyers want some reward for holding the inventory, and thus far it hasn’t come within the form of share worth progress. The Phoenix share worth is down 12.6% during the last yr, and 30.66% over 5 years.
But the board couldn’t enhance funds if it wasn’t producing sufficient money. And the excellent news is that it’s. Once more, right here’s what the charts say.
Chart by TradingView
In 2019, money flows fell 1.92%. They’ve climbed and at an accelerating tempo, rising 1.49% in 2023.
Money flows look robust
In reality, final yr was a bumper yr for Phoenix. It was concentrating on £1.8bn of money. It smashed that with £2bn. It boasts a stable steadiness sheet, too, with a Solvency II capital ratio of 176%. That’s close to the higher finish of its 140% to 180% goal vary.
Analysts are optimistic, predicting that 2023’s dividend per share of 52.65p will climb to 54.3p in 2024, 56.1p in 2025, and 57.5p in 2026. I’m feeling a little bit bit happier about my share buy now.
Phoenix might get a re-rating when the Financial institution of England lastly begins slicing rates of interest. This may hit financial savings charges and bond yields, and make its dividend look much more engaging.
I can not reside by dividends alone. In some unspecified time in the future, I’d prefer to get some share worth progress too, however right here the outlook is a little more unsure.
JPMorgan has simply trimmed its Phoenix share worth goal from £5.25 to £5. Right now, the shares trades at 4.81p. Not a lot scope for progress there.
For now, I’ll console myself with the earnings. I’ll reinvest each penny I obtain to purchase extra Phoenix shares, and hope that at some point the market involves my perspective, and the share takes off. Fingers crossed!
