Just how high can the Phoenix Group share price go now?

After a big confidence boost for the dividend, can the Phoenix Group Holdings share price get started on the recovery road?

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The Phoenix Group Holdings (LSE: PHNX) share price has just spiked upwards. From market close on 18 March to the time of writing on 27 March, the shares have gained 12%.

It happened after the insurance firm posted strong 2023 results, and there was one specific thing that seems to have made all the difference.

First, let’s put this share price boost in context. It was a good week, but Phoenix Group shares are still down 20% in five years.

Dividends

I invest mostly in high-yield shares, and there are a good few to choose from in the FTSE 100. Phoenix, with its 10% yield, is high on my list.

But I think it’s vital to not just go for the biggest yields. And I’d say there are some clues as to which big ones to be wary of.

One comes from earnings. If a company isn’t bringing in the earnings it needs to cover the cash payments, they might not be sustainable.

Market sentiment

A look at the share price can give is a clue to what the market thinks of a dividend outlook too. Vodafone is a good example. For years, it offered dividend yields of around 10%.

But its share price kept on sliding. An annual 10% isn’t much good if you lose half your stake in five years. Which is what happened to Vodafone shares. And now, the dividend is to be slashed in half in 2025.

I had the same fear over Phoenix.

Dividend policy

But when I opened the firm’s 2023 results on 22 March, I had a nice surprise. The company announced a full-year dividend of 52.65p per share, for a 10.8% yield on the previous close.

More importantly, the board spoke of “the new progressive and sustainable dividend policy we will operate going forward“.

There was no real detail, other than a note that said: “The Board will continue to prioritise the sustainability of our dividend over the very long term. Future dividends and annual increases will continue to be subject to the discretion of the Board, following assessment of longer-term affordability.”

Confidence

Now, a cynic might say you can make a dividend more sustainable by cutting it, and then make it progressive. There’s no hint of a dividend cut really — I just include this as a worst-case caution.

But it suggests the Phoenix board has confidence in current dividend levels, at least in the short-to-medium term. And it will prioritise dividends in the long term.

In a sector like this, I think that’s about as positive as we could hope.

How high?

We’re looking at a high price-to-earnings (P/E) ratio, which counts against price rise hopes. But forecasts show earnings growing strongly, to put the P/E at 24 by 2026.

This is in a recovering business that’s been through a few years of losses, and a high P/E can be misleading. But I can see why investors might still be wary.

And if Phoenix keeps its yields up, I could see share price gains in the next few years. Even a 50% rise could mean a 6.5% dividend yield.

Of course, if the dividend does drop one year, I’d expect a price fall.

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 recommended Vodafone Group Public. 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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