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Simply because a dividend share comes with a mind-bogglingly excessive yield doesn’t robotically make it a high revenue inventory. Typically, the reverse is true.
Many see an ultra-high yield as a warning sign. Particularly when it hits double digits. However I’m betting that FTSE 100 insurer Phoenix Group Holdings (LSE: PHNX) is an exception.
I purchased the inventory each in January and March as a result of I felt its dividends have been in all probability sustainable. I can’t say that for positive, although.
Sky-high revenue
Metropolis analysts appear constructive. Immediately, Phoenix has a trailing yield of a staggering 10.94%, however that’s simply the beginning. It’s forecast to yield 11.2% in 2024, rising to 11.5% in 2025. A method of checking whether or not a yield is sustainable is by latest dividend per share progress. Right here’s what the charts say.
Created with TradingView
In 2019, Phoenix improve its dividend per share by 1.74% to 46.8p. It then elevated payouts in every of the following 4 years. Within the final three, the proportion will increase have been notably larger at 2.95%, 3.89%, and three.64%.
So somewhat than nervously trimming funds, administration has been rising them at a quicker tempo.
Traders want some reward for holding the inventory, and to date it hasn’t come within the form of share value progress. The Phoenix share value is down 12.6% over the past 12 months, and 30.66% over 5 years.
But the board couldn’t improve funds if it wasn’t producing sufficient money. And the excellent news is that it’s. Once more, right here’s what the charts say.
Chart by TradingView
In 2019, money flows fell 1.92%. They’ve climbed and at an accelerating tempo, rising 1.49% in 2023.
Money flows look sturdy
In reality, final 12 months was a bumper 12 months for Phoenix. It was concentrating on £1.8bn of money. It smashed that with £2bn. It boasts a strong steadiness sheet, too, with a Solvency II capital ratio of 176%. That’s close to the higher finish of its 140% to 180% goal vary.
Analysts are optimistic, predicting that 2023’s dividend per share of 52.65p will climb to 54.3p in 2024, 56.1p in 2025, and 57.5p in 2026. I’m feeling somewhat bit happier about my share buy now.
Phoenix may get a re-rating when the Financial institution of England lastly begins slicing rates of interest. This may hit financial savings charges and bond yields, and make its dividend look much more enticing.
I can’t stay by dividends alone. In some unspecified time in the future, I’d prefer to get some share value progress too, however right here the outlook is a little more unsure.
JPMorgan has simply trimmed its Phoenix share value goal from £5.25 to £5. Immediately, the shares trades at 4.81p. Not a lot scope for progress there.
For now, I’ll console myself with the revenue. I’ll reinvest each penny I obtain to purchase extra Phoenix shares, and hope that sooner or later the market involves my standpoint, and the share takes off. Fingers crossed!
