10.5% yield! Here’s the dividend forecast for Phoenix Group shares through to 2026

Phoenix shares have proved a great way to generate a passive income for years. Should I add the FTSE 100 stock to my portfolio in October?

| 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.

Man smiling and working on laptop

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.

Phoenix Group (LSE:PHNX) has proven to be one of the FTSE 100‘s best dividend shares during the past decade. It even continued to raise shareholder payouts during the Covid-19 crisis when other blue-chip shares were cutting, cancelling and postponing dividends.

Phoenix Group's dividend record.
Source: TradingView

The Footsie’s home to many great dividend growth shares. Sage Group, Ashtead Group and Halma are just a few blue-chip stocks with long records of unbroken payout growth.

However, these companies don’t offer the market-mashing dividend yields of Phoenix shares. These eventually rise through 10% over the medium term, as the table below shows.

Should you invest £1,000 in Rolls-Royce 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 Rolls-Royce made the list?

See the 6 stocks

YearDividend per shareDividend growthDividend yield
202454p3%9.9%
202555.7p3%10.2%
202657.3p3%10.5%

The prospect of making a FTSE 100-beating dividend income over the period is tantalising to me. The average forward yield for Footsie share sits way back at 3.5%.

But dividends are never guaranteed, and I need to consider how realistic these forecasts are. I must also consider other factors that impact Phoenix’s investment case. Big dividends might count for nothing if the company’s share price plummets.

Here’s my view of the financial services mammoth.

Bad omen

To be honest, my first take on Phoenix’s dividend prospects isn’t an encouraging one. I’m looking at dividend cover, which indicates how well predicted payouts are covered by expected earnings.

Like dividend forecasts, profits estimates can also miss their mark. So a reading of 2 times and above provides investors with solid protection.

In the case of Phoenix, predicted earnings of 44.9p per share for 2024 are actually lower than the expected dividend per share of 54p.

The relationship switches from next year, but dividend cover of 1 times and 1.1 times for 2025 and 2026, respectively, is far from robust.

Good omen

That said, I wouldn’t say Phoenix’s poor dividend cover is a dealbreaker. Earnings per share have regularly surpassed dividends in recent years, but this hasn’t hampered the company’s ability to pay a huge and growing dividend.

Past performance isn’t a reliable guide of the future. But a glance at Phoenix’s balance sheet fills me with optimism.

As of June, its Solvency II capital ratio was 168%. This was well inside the company’s target of 140% to 180%.

Phoenix is a cash-generating machine. And as a potential investor I’m encouraged by its ability to regularly meet — or even beat — its cash creation targets.

Strong cash generation in the first half, for instance, led the firm to claim “we are confident of delivering at the top-end of our £1.4bn to £1.5bn target range in 2024.”

A top dividend share

Phoenix Group's share price performance since 2019.
Source: TradingView

As a consequence, I’m quite upbeat on Phoenix’s dividend forecasts for the next few years. My main concern is whether its share price could struggle through to 2026. Tough economic conditions and the ever-present threat of market volatility could adversely impact the business.

However, as a long-term investor this isn’t a dealbreaker for me. I believe that Phoenix’s share price will rise steadily over time as demographic changes drive demand for retirement products. I actually think it could rise in value as interest rates fall.

And in the meantime, I could look forward to more juicy dividends. This is a share I’ll seriously consider when I next have cash spare to invest.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

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.

Royston Wild has positions in Ashtead Group Plc. The Motley Fool UK has recommended Ashtead Group Plc, Halma Plc, and Sage Group Plc. 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.

More on Investing Articles

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »