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Phoenix Group (LSE:PHNX) shares get a lot of consideration from buyers due to their large dividend potential.
This isn’t stunning. At 11.1%, the monetary companies supplier has the most important ahead dividend yield on the FTSE 100 at present. Phoenix additionally has a protracted document of dividend progress, with money payouts having risen in 9 of the final 10 years.
What will get much less focus is the corporate’s colossal progress potential. Earnings rose 38% yr on yr in 2023. And Metropolis analysts anticipate them to proceed rising strongly by to 2026 not less than, because the desk under reveals:
Phoenix’s share value is down 9% in 2024, and has slumped extra lately over moderating expectations on rate of interest cuts. But when Metropolis forecasts begin to look correct, I’d anticipate its shares to spring greater once more.
However how correct are present earnings estimates? And will buyers think about Phoenix shares for his or her portfolios?
Turning the nook
After earlier rate of interest shocks, Phoenix bounced again strongly in 2023 and hit its progress targets means forward of schedule.
It loved robust demand at each its Pensions and Financial savings and Retirement Options divisions, the latter pushed by a increase in bulk buy annuities (BPAs). This meant it achieved incremental new enterprise long-term money era of £1.514bn, hitting a goal of £1.5bn two years forward of plan.
Phoenix’s buying and selling efficiency has remained rock-solid since then. Adjusted working revenue leapt 15% within the six months to June, helped by power throughout its product ranges in addition to widespread cost-cutting.
Impressively, complete money era additionally rose 6% yr on yr to £950m, and its Solvency II ratio was 168% as of June, on the high finish of its 140-180% vary. That is important, as Phoenix has the power to take a position for progress whereas additionally persevering with to pay its massive dividends.
Wanting good
However can the enterprise preserve its spectacular run going? I feel it will probably. It has large structural alternatives to seize, because the world’s quickly ageing inhabitants drives demand for pensions, wealth and retirement merchandise.
And Phoenix has well-loved manufacturers it will probably use to use its rising market. The likes of Customary Life and SunLife have round 12m clients on their books.
There are nonetheless dangers to firm earnings, in fact. The agency’s first-half efficiency was dented by the continuation of upper rates of interest and antagonistic actions on fairness markets. These might stay problematic too if international inflation stays ‘sticky’.
A cut price?
However on stability, I feel issues are wanting good for Phoenix’s backside line, pushed by these demographic alternatives. The outlook’s additionally supported by an anticipated fall in rates of interest over the following couple of years.
With earnings multiples under 10 occasions for the following two years, I feel the dangers to progress forecasts are presently baked into Phoenix’s share value.
Actually, with the corporate additionally carrying these double-digit dividend yields, I feel it’s a high worth inventory to think about.
