The Phoenix Group Holdings (LSE: PHNX) share price has jumped 7.54% as I write this morning (17 March), and I couldn’t be happier.
I bought the stock 18 months ago, and while I’ve enjoyed handsome dividends since then, share price growth had been elusive. Until today.
Phoenix shares are suddenly flying and for me, this underscores the appeal of buying high-yield FTSE 100 dividend stocks when they’re out of favour.
Not only do I receive a substantial income but there’s also potential for share price recovery.
A strong set of FTSE 100 results
Phoenix Group’s 2024 full-year results have impressed investors, as reflected in today’s share price surge. Operating cash generation rose 22% to £1.4bn, two years ahead of its 2026 target. Group CEO Andy Briggs said this was “driven by increased surplus from our growing businesses and strong delivery of recurring management actions”.
Total cash generation did fall 12% from £2.02bn to £1.78bn, but still exceeded the top end of the board’s 2024 target range of between £1.4bn and £1.5bn.
Group IFRS adjusted operating profit jumped 31% “supported by particularly strong growth in our capital-light Pensions and Savings business”, Briggs said.
The balance sheet remains resilient, with a £3.5bn Solvency II surplus, although again, that’s down from £3.9bn in 2023. The board says that “supports our progressive and sustainable dividend policy”.
Shareholder Capital Coverage Ratio of 172% is down slightly from 176% in 2023 but remains comfortably in the top-half of its operating range of 140% to 180%.
For income-focused investors like myself, the dividend is a critical factor. Phoenix has recommended a final 2024 dividend of 27.35p, up 2.6%.
While that isn’t a massive hike, it’s hard to complain, given just how much income I’m getting.
Following this morning’s surge, the trailing dividend yield has dipped slightly from 10.3% to 9.4%. I can live with that. It’s still the highest on the blue-chip index.
I don’t expect too much share price growth
The prospect of falling interest rates could enhance the appeal of dividend stocks like Phoenix. As yields on rival asset classes such as cash and bonds decline, higher-yielding FTSE 100 equities should look even more enticing.
Let’s not get too carried away. While today’s price jump is encouraging, those considering investing must first beware the impact of any short-term profit-taking. The shares are already retreating from this morning’s high.
The 14 analysts offering one-year share price forecasts have produced a median target of 574.5p, suggesting an increase of just 2% from today’s price. These figures were compiled before today’s results, and brokers may take a more optimistic view now, of course. But nobody is expecting Phoenix shares to shoot the lights out. Including me.
Even after this morning’s jump, they’re still up just 3.5% over one year. They’re down 10% over five.
This is a bumpy time for the global economy, and this could hit the value of assets under management. That won’t be reflected in today’s results, but will pop up in the next set of numbers. The market response could be very different then.
Also, Phoenix isn’t as cheap as it was, with the price-to-earnings ratio now climbing above 21. While I’m thrilled by today’s share price bump, I still see this as a vehicle for income, rather than growth. And I’m certainly getting that.
