Phoenix Group Holdings’ (LSE: PHNX) share price fell 6.5% Monday (8 September) after its H1 2025 results release.
I was extremely surprised as these saw IFRS adjusted operating profit jump 25% year on year to £451m. This reflected a 20% jump in its Pensions and Savings business, and a 36% leap in its Retirement Solutions segment.
The share price drop appears to have been prompted by the IFRS loss after tax of £156m. This arose because of the IFRS’s accounting of economic variances. These are assumptions on the UK’s expected economic performance (including interest rates, inflation, and growth), and the possible result on asset values.
That said, total operating cash generation increased 9% to £705m, which can be a major growth driver. And the firm’s shareholder capital coverage ratio rose 3% to 175%. This compares to the regulatory industry minimum of 100%.
Phoenix says it remains on track to achieve a 2024-2026 total cash generation target of £5.1bn, with £2.6bn of this already achieved. It is also on target for a 140-180% shareholder capital coverage ratio range, with presently stands at 175%. And it remains on course to make around a £1.1bn IFRS adjusted operating profit in 2026, with H1 recording £451m.
A risk here is any further surge in the cost of living that may cause investors to withdraw funds.
However, consensus analysts’ estimates are that Phoenix’s earnings will increase by a stunning 96.3% a year to end-2027. And it is growth here that ultimately drives any firm’s share price and dividends higher.
Increasing dividend yield from a high base
Phoenix has increased its annual dividend by 13.7% from 2020’s 47.5p to 2024’s 54p. This generates a current yield of 8.7% — one of the highest in any major FTSE index.
In its H1 results, Phoenix raised the interim dividend 2.6% from last year’s 26.65p to 27.35p. If the same increase were applied to last year’s entire dividend, then this year’s annual payout would be 55.404p. On the current share price of £6.23, this would give a dividend yield of 8.7%.
Analysts forecast the dividend will rise to 57.1p in 2026, and to 58.9p in 2027. These would give respective yields of 9.2% and 9.5%.
How much yearly dividend income can be made?
Investors considering a £10,000 holding in 8.7%-yielding Phoenix would make £870 in first-year dividends. This would rise to £8,700 after 10 years and to £26,100 after 30 years.
However, the dividend returns could be much higher if dividend compounding were used. This is a standard investment practice which simply entails reinvesting the dividends back into the stock that paid them. It is a similar idea to leaving interest to accrue in a savings account.
By doing this – with the same average yield and investment – there would be £13,794 in dividends after 10 years, not £8,700. And after 30 years on the same basis, this would have risen to £124,716 instead of £26,100.
Adding in the initial £10,000 and the Phoenix holding would be worth £134,716 by then. And at that point, it would be paying an annual dividend income of £11,720!
Given its very high dividend income profile and stellar earnings growth forecasts, I will buy more Phoenix stock very soon.
