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Income stock investing is often about patience, discipline and being willing to buy when a dividend looks sustainable and the entry point attractive. A super-high dividend yield doesn’t hurt either, which brings me to Phoenix Group Holdings (LSE: PHNX).
It’s a FTSE 100 insurer with a solid business with a stellar trailing yield of 8.35%. Until recently, the yield was nudging double digits. The only reason that’s dropped is because the share price has climbed.
Over the last 12 months, Phoenix is up 22%. Factor in that income and the total return comes in at just over 30%.
I’ve held the shares for a couple of years, and my own return’s even better. Thanks to previous years’ dividends, I’m already sitting on more than 40%. Not bad for what some might see as a boring old-school stock.
Phoenix Group’s rising
Phoenix has increased its shareholder payouts nine years in a row, even managing a rise during the pandemic. Increases are in the low single digits, but at least consistent. This year’s hike was a modest 2.56%, taking the annual payout to 54p a share. That may sound cautious, but I find that level of consistency reassuring. It feels planned, not forced.
Latest numbers back that up. In March, Phoenix posted a 22% jump in operating cash generation to £1.4bn and upgraded its three-year target from £4.4bn to £5.1bn. The board also repaid £250m of debt. Its goal is to reduce leverage further by 2026. In my view, that’s the kind of financial discipline income investors need.
Valuation still looks decent
Despite the recent rally, Phoenix still trades on a modest price-to-earnings ratio of 14.85. For a business generating this level of cash and dividends, I don’t think that looks excessive. The group’s even considering a rebrand back to the better-known Standard Life name. That might give sentiment a short-term lift, though the long-term story is more important.
There are risks, of course. Phoenix depends heavily on pension and investment volumes. If those shrink, earnings could come under pressure. It’s also in a competitive market, where margins are always being tested. It has to push into new areas, like bulk annuities, to keep growing. It’s not the only insurer trying. That’s why I’m not putting all my eggs in one basket, but I do think this remains a strong candidate to consider buying today.
Twelve analysts covering Phoenix have produced a median 12-month target price of 681p. From today’s level of 648p, that’s a small increase of about 5%. If they’re right, investors would be looking at a total return of around 13% once the dividend’s added in. Not brilliant, but not bad.
I’m hoping to scrape together £1,000 in cash over the next few weeks, once I’ve paid off my summer holiday. If I manage it, I’ll happily add to my existing holding in Phoenix. At today’s price, that would buy me 154 more shares. Based on this year’s forecast dividend of 55.77p, I’d pocket £85.88 in income alone. Add any growth on top, and I’d be more than happy.
Until then, I’ll just keep reinvesting the dividends from the shares I already own.
