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.
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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?
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.
| 2015 | 0.4084p |
| 2016 | 0.4084p |
| 2017 | 0.4406p |
| 2018 | 0.4517p |
| 2019 | 0.4680p |
| 2020 | 0.4680p |
| 2021 | 0.4820p |
| 2022 | 0.4960p |
| 2023 | 0.5200p |
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.
