Phoenix Group (LSE:PHNX) has (in my opinion) proved to be one of the FTSE 100‘s best dividend shares in recent times.
Earnings have been up and down due to various challenges affecting the financial services market. Even so, a strong balance sheet has enabled the company to keep raising shareholder payouts since 2016.
This included a 2.6% year-on-year increase in 2024, to 54p per share. And City analysts expect dividends to keep rising over the next couple of years at least:
| Year | Dividend per share | Dividend growth | Dividend yield |
|---|---|---|---|
| 2025 | 55.77p | 3.3% | 9.8% |
| 2026 | 57.47p | 3.1% | 10% |
Recent share price strength has eroded the dividend yield on Phoenix shares. But with readings in and around 10% through to 2026, they are still among the highest currently available on the Footsie.
Yet it’s important to remember that dividends are never, ever guaranteed. What’s more, broker projections can often miss the mark if economic conditions worsen or balance sheets become stretched.
So how realistic are current dividend estimates? And should I buy Phoenix shares for my portfolio?
Dividend cover
The first thing I’ll look at is dividend cover. This is the simplest way to assess a share’s dividend prospects, by considering how well predicted dividends are covered by anticipated earnings.
This is especially important for companies that operate in cyclical sectors like financial services. A reading of two times or above is said to provide a wide margin of safety should profits get blown off course for any reason.
Unfortunately, Phoenix scores pretty poorly on this metric. In fact, the expected dividend for 2025 barely matches projected earnings of 55.98p per share.
Things improve for 2026, but expected earnings of 63.14p mean dividend cover is just 1.1 times.
Balance sheet
However, it’s also critical to note that weak dividend cover is a constant at Phoenix. In fact, this is a common theme among financial services companies: maintaining capital buffers and navigating investment volatility can substantially impact earnings.
I believe Phoenix’s balance sheet is a better indicator of its ability to meet dividend projections. And on this basis, things are looking pretty good for investors.
At the end of 2024, its Solvency II shareholder capital coverage ratio was an impressive 172% and roughly in line with the 176% recorded a year earlier.
This represents Phoenix’s ability to create impressive amounts of cash. Last year, total cash generation was £1.8bn, sailing above its own forecasts of £1.4bn-£1.5bn. Accordingly, the business now expects to report total cash generation of £5.1bn between 2024 and 2026, up £700m from previous targets.
A stock to buy?
With the company’s Solvency II ratio also well above its target range of 140% to 180%, I believe the company’s in great shape to meet current dividend forecasts through to 2026.
So does this make Phoenix shares a no-brainer buy? Not necessarily, as a deterioration in trading conditions and subsequent share price fall could offset the benefit of big and growing dividends.
Yet, it’s still my opinion that Phoenix shares are worth serious consideration. I expect earnings to grow strongly during the long term, driven by rapid population ageing in its markets and the rising importance in financial planning. Consequently I’m also predicting the business to keep delivering a large and growing dividend over time.
