1 breathtaking FTSE dividend stock down 20% I’ll buy in August and hold forever

Harvey Jones reckons FTSE 100 dividend stock Phoenix Group Holdings could finally deliver some growth on top of its juicy income.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Whenever I look at this breathtaking FTSE 100 dividend stock, I assume I must be missing something.

The company in question is insurance conglomerate Phoenix Group Holdings (LSE: PHNX). The reason I can’t quite believe my eyes, is that it yields a thumping 9.68%, one of the highest dividends around.

The reason I assume I’m missing something is that investors aren’t piling in to take advantage of this massive income opportunity.

Should you invest £1,000 in Alpha Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Alpha Group made the list?

See the 6 stocks

FTSE 100 income hero

The Phoenix share price has crashed 22.09% over five years. Over 12 months, it’s down 1.67%. Don’t investors like dividends anymore?

Created with Highcharts 11.4.3Phoenix Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

I like dividends, especially big fat juicy ones like this. Yet I’m not daft, I know shareholder payouts can become highly vulnerable once yields hit this insane level. No doubt many investors fear the board will be forced to cut at some point, and the shares will fall as a result.

Yet Phoenix actually has a solid track record of dividend per share growth, as my table shows.

20150.4084p
20160.4084p
20170.4406p
20180.4517p
20190.4680p
20200.4680p
20210.4820p
20220.4960p
20230.5200p

While the board froze the dividend in 2016, and again in 2020 during the pandemic, typically it has hiked them every year. 

Dividends won’t survive unless companies generate the cash to pay them. Last year, Phoenix set itself a target of generating £1.8bn of cash. It made £2bn.

Markets seem confident of further dividend growth, with the yield forecast to hit 9.93% this year, then 10.2% in 2025. Like I said, breathtaking. That’s double the income I could get on an easy access savings account today.

Phoenix Group may finally rise

The gap will widen when the Bank of England finally starts cutting interest rates, which could happen as early as tomorrow’s 1 August meeting.

Investing in shares is always riskier than leaving money in the bank, because capital is at risk. Yet in this case, I think the rewards outweigh the risks. Especially since Phoenix has a solid balance sheet, with a Solvency II capital ratio of 176%. That’s near the upper end of its 140% to 180% target range.

It’s operating in a competitive market, as rivals include FTSE 100 giants Aviva and Legal & General Group. The sector has been hit as rising inflation drives up claims costs, while reducing the value of the hundreds of billions they hold in assets to cover liabilities. All three offer high yields today, as their share prices have floundered.

Yes that’s changing. The Phoenix share price is up 10.66% over the last three months. Are investors finally waking up to the opportunity?

I bought Phoenix shares in January and again in March. I’m up just 5.33% but I’ve also received two dividend payments. After re-investing those, my total return is 14.22%.

These are early days, and I think there’s a lot more to come. Even if its share price recovery is postponed again, I’ve still got the income. If more people come round to my way of thinking, Phoenix could fly. I’ll buy more in August, in case it does.

Should you buy Alpha Group now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

Harvey Jones has positions in Legal & General Group Plc and Phoenix Group Plc. 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

2 FTSE 100 and FTSE 250 stocks to consider as stock markets plummet!

Looking for lifeboats as growth-crushing trade tariffs loom? Here are two (including a FTSE 100 gold stock) I think merit…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Watches of Switzerland shares 1 year ago is now worth…

Watches of Switzerland shares have been decimated by Trump’s tariffs on Switzerland. Dr James Fox explores whether this is an…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Growth stocks are crashing! Here’s what I’m doing now

Our writer shares his thoughts as growth stocks get crushed, as well as a favourite from the Nasdaq that he…

Read more »

Investing Articles

What’s going on with the Nvidia share price now?

The Nvidia share price is tanking. Once the most valuable listed company, Nvidia has seen more than $1trn wiped off…

Read more »

Investing Articles

This FTSE AIM stock has £2.3bn in net cash, and a market cap of £2.4bn!

I love this FTSE AIM stock, but it really hasn’t delivered for me yet. The stock trades with crazily low…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Down 15% in a week! Are these 5 FTSE 100 fallers screaming buys as markets plunge?

Five of Harvey Jones's favourite FTSE 100 stocks all have the same thing in common – they've fallen around 15%…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

2 stocks that have been crushed and now offer a ton of value

Edward Sheldon has been scanning the market for stocks that offer value after the sell-off. Here are two shares he…

Read more »