New dividend policy sends the Phoenix Group share price up 10%. Time to buy?

A progressive and sustainable dividend policy, with a 10%+ yield? No wonder the Phoenix Group Holdings share price climbed on FY results.

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Phoenix Group Holdings (LSE: PHNX) just announced “strong full-year 2023 results and [a] new progressive dividend policy,“. As a result, the share price quickly jumped 10%.

On 22 March, the company said its “vision is to be the UK’s leading retirement savings and income business.”

To that end, we saw £1.5bn in new business cash from its Standard Life operation. That’s a new record. And it means Phoenix has hit its 2025 growth targets two years early.

Share price

The Phoenix Group share price is still down 20% in the past five years. So is it cheap? For me, the key with a stock like this is cash.

Phoenix reported £2.024bn total cash generation for the year. That’s up from £1.504bn in the 2022 year. And it’s well ahead of the firm’s target of around £1.8bn.

The board reckons it means a big boost to long-term cash generation. And hitting its 2025 cash target so far ahead of plan seems like great going.

This is all ahead of analyst forecasts too. They already looked good to me, and we’ll have to wait to see how they’re updated now.

Dividends

CEO Andy Briggs told us that confidence in the firm’s strategy “is demonstrated by the new progressive and sustainable dividend policy we will operate going forward.

The FY payout for 2023 rises to 52.65p per share. On the previous day’s close, that’s a huge 11.5% dividend yield.

There were few details of the new dividend policy, other than that the board “expects the interim dividend to be in line with the previous year’s final dividend.

The City had expected strong dividends for the next few years. And I think this adds a bit of confidence.

No-brainer buy?

With all this good news, and these rivers of cash we might expect in the coming years, are Phoenix shares a no-brainer buy for me now?

Well, no, nothing is. The stock has been on my candidates list for a while. But I still see significant long-term risk.

Phoenix stock, on earnings-based measures, doesn’t seem cheap. We’re looking at a forecast price-to-earnings (P/E) ratio of 65 for 2024.

That’s at a time of turnaround, so it might be a bit misleading. But it could still be up around 28 by 2025, when I’d expect things to be more settled.

Sector risk

The Financial Conduct Authority (FCA) is pushing what it calls its new Consumer Duty requirements. This could lower the fees that firms like this are able to charge, and could hit them with new costs.

We’ve already seen the St. James’s Place share price hammered when the firm had to set aside a huge £426m for possible client refunds.

Phoenix suggests there’s no real worry about these new FCA rules. But only time will tell.

It’s also a cyclical business. And the shiny bright future that the sector might see one year can turn cloudy in a surprisingly short time.

With that all said, though, Phoenix Group might have just made it to the top of my list for my next buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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