I try to look at dividend forecasts with a three-year time horizon. This is mainly because accurately predicting income streams for companies beyond that is almost impossible. Yet over the coming years, having an idea of the dividend payments can be very handy when making a decision about whether to buy or not. Here’s a FTSE 100 firm that I spotted.
Key information about the firm
I’m talking about Phoenix Group (LSE:PHNX). The business is a UK-based insurance and long-term savings provider, managing over £5bn. The company specialises in acquiring and managing closed books of life insurance policies, focusing on optimising and extracting value from these legacy portfolios. Additionally, Phoenix offers a range of pensions, savings, and retirement solutions to millions of customers across the UK and Europe.
It makes money by collecting ongoing premiums from existing policyholders and earning returns on the substantial investment portfolios backing its insurance liabilities.
The element of collecting insurance premiums provides a stable source of cash flow. This makes it attractive for income investors, as reliable cash flow can often translate to earnings paid as dividends.
Digging into dividends
Historically, Phoenix Group has paid out two dividends per year. The first gets announced in March, with the other in September, at the same time as the half-year and full-year results are released. The past two dividends paid totalled 54p. When using the current share price of 642.5p, it equates to a dividend yield of 8.4%.
This already makes it the highest-yielding option in the entire FTSE 100. Yet with the share price up 30% over the past year, I don’t see the high yield being driven by the stock falling. Rather, the increase in dividend payments over recent years has helped to push it up.
Looking forward, the total dividend paid for 2026 is expected to be 55p, rising to 55.5p in 2027 and 56p in 2028. If I assume the share price is the same in 2028, this would mean the dividend yield would rise to 8.8%.
Points to be aware of
In reality, the stock’s price will move between now and 2028. This means the actual yield could be higher or lower than my assumption. Yet part of this doesn’t worry me too much. If I buy now and the share price rises, the future yield will be lower. But I’ll have made money from the stock’s capital appreciation.
The main risk I see is changes to the regulatory environment. The pensions space is heavily regulated (for good reason!). But it means that changes to solvency ratios or capital requirements for companies like Phoenix can disrupt operations and provide some stumbling blocks.
On balance, I’m seriously thinking about adding the stock to my portfolio for long-term income benefits.
