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Purchasing for ultra-cheap dividend shares is a superb pleasure of mine proper now. Each the FTSE 100 and FTSE 250 indices are loaded with shares which can be buying and selling means, means under worth.
Take Phoenix Group (LSE:PHNX) for example. Not solely does it look grime low-cost in terms of predicted earnings. Its dividend yield’s approaching double-digit percentages.
Phoenix isn’t a family identify like Authorized & Basic or Aviva. However it actually isn’t a minnow within the monetary companies sector, with a market capitalisation of £5.5bn.
The enterprise — which gives financial savings and retirement merchandise within the UK — has round 12m prospects on its books. And proper now, its shares appear to be a superb discount to me.
Too low-cost to disregard?
Its ahead price-to-earnings (P/E) ratio of 12.2 instances doesn’t look that spectacular. Nevertheless, scratch a bit deeper and the agency appears to be like like a discount within the context of attainable income.
Predicted earnings development of 37% in 2024 leaves Phoenix on a price-to-earnings development (PEG) ratio of 0.3 instances. Any studying under 1 implies {that a} share is undervalued.
In the meantime, the dividend yield on its shares is an enormous 9.8%, reflecting predictions of a 54p per share dividend for 2024.
Not solely is that this miles above the three.5% FTSE 100 ahead common. It additionally beats the corresponding yields on Aviva, Authorized & Basic, and M&G shares.
Vibrant future
In fact, these engaging PEG ratios and yields are based mostly on dealer forecasts, neither of which will be assured.
As an illustration, Phoenix’s earnings might fall in need of estimates if robust financial situations dent monetary product demand. They might additionally disappoint if the worldwide inventory market sinks.
Nevertheless, as a affected person investor I’m ready to take a bit danger within the speedy future if the long-term image’s compelling sufficient. And within the case of Phoenix, the income image’s extraordinarily brilliant, pushed by rising demand for pensions and different retirement merchandise.
10%+ dividend yields
I imagine the corporate will proceed paying giant and rising dividends from 2024 onwards.
I discussed earlier that the dividend yield on Phoenix Group shares falls simply in need of double-digit territory. Nicely, that’s solely half true. It sits at under 10% for 2024. However predictions of additional dividend development, to 55.9p and 57.3p for 2025 and 2026 respectively, drive the yield to 10.1% and 10.4%.
Once more, dividends are by no means assured. However I’m not about to guess in opposition to the Footsie agency. It has an excellent monitor file of rising shareholder payouts, because the chart above exhibits.
Phoenix’s robust stability sheet actually places it in fine condition to proceed elevating dividends. Its shareholder capital protection ratio was 168% as of June, on the higher finish of its 140-180% goal.
And the agency stays heading in the right direction to realize complete money era of £4.4bn in the course of the three years to 2026. Whereas it’s not with out danger, I feel Phoenix is an excellent FTSE discount to think about proper now. And particularly for passive earnings buyers.
