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The Phoenix Group (LSE: PHNX) dividend yield is the third-highest on the FTSE 100, an index known worldwide for stocks offering bumper income. With a stake of £10,000, the current 8.40% yield would net a £840 yearly passive income. For context, the current Footsie average stands at 3.24% which is nearly a third of the Phoenix yield.
Is the payment sustainable? The forecasts suggest so. Given the unpredictable nature of stock markets, we don’t like to look too far into the future when looking at forecasts, but three years ahead is somewhat reliable. Analysts are expecting the yield to rise in each of those three years, too, with yields of 8.67%, 8.92% and 9.24%. And those returns can be boosted if the dividends are reinvested.
Of course, we are not just buying a stock or a dividend yield, we are buying into a company. So the real question is whether Phoenix Group can thrive as a business and offer such handsome rewards long into the future.
Good earnings
Recent news coming out of the firm is positive. Phoenix posted its second-quarter earnings on 8 September, achieving a number of beats on consensus.
Operating profit is growing in both its Pensions and Savings and Retirement Solutions divisions. Overall operating cash generation is up 9%, although total cash generation is down 17%.
One of the downsides of investing in finance firms with massive balance sheets is the results can be a little complicated. This is why the group can make a loss while still having good results.
Perhaps the most salient detail is that the interim dividend grew by 2.6%. A slowly increasing dividend is what any income investor treasures the most. With a 10-year growth rate of 3.05% yearly and nine consecutive years of increases, this could be a stock worth considering.
Share price
There tend to be trade-offs with dividend stocks, a notable one being is a lack of share price appreciation. With large amounts being funnelled out of the company, it’s difficult for the shares to grow in value.
The Phoenix Group share price has hovered between 600p and 700p for around a decade now. Its current price of 625p may offer a fabulous dividend, but it’s unlikely to be racing higher.
Interestingly, the share price dipped to 445p briefly during 2023 as higher interest rates put pressure on some of the assets it was holding. The bounceback was swift, a sign that this would have been a great value buy at the time.
Overall though, Phoenix looks like a much safer option than some of the other 9%+ yields we’ve seen over the years that often get rebased sooner rather than later. It’s worth thinking about, in my opinion.
