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Phoenix Group (LSE:PHNX) shares are getting a lot of attention from investors because of their huge dividend potential.
This is not surprising. At 11.1%, financial services providers have the largest share of capital in the past FTSE 100 today. Phoenix also has a long history of dividend growth, with cash payouts rising in nine of the past 10 years.
What is less focused on the company’s growth. Earnings are up 38% year-on-year through 2023. And City analysts expect them to continue growing strongly until at least 2026, as the table below shows:
Phoenix’s share price is down 9% in 2024, and has fallen recently due to weighing on expectations of interest rate cuts. But if City’s predictions start to look accurate, I’d expect its shares to rise again.
But how accurate are current income estimates? And should investors consider Phoenix shares in their portfolios?
Turning the corner
After the previous interest rate shock, Phoenix rebounded strongly in 2023 and achieved its growth targets ahead of schedule.
It enjoyed strong demand in both its Pensions and Savings and Retirement Solutions segments, driven by the increase in bulk purchase funds (BPAs). This meant that it achieved an increase in long-term new business profits of £1.514bn, reaching a target of £1.5bn two years ahead of schedule.
Phoenix’s trading performance has remained strong since then. Adjusted operating profit jumped 15% in the six months to June, helped by strength across its product lines and widespread cost-cutting.
Impressively, net income also increased by 6% year-on-year to £950m, while its Solvency II ratio was 168% as of June, at the high end of its 140-180% range. This is important, as Phoenix has the ability to invest in growth while continuing to pay its large dividends.
You look good
But can the business continue its amazing performance? I think it can. It has many opportunities for planning to seize, as the world’s rapidly aging population drives demand for pension, wealth and retirement products.
And Phoenix has very popular products that it can use to exploit its growing market. The likes of Standard Life and SunLife have an estimated 12m customers on their books.
There are still risks to the company’s earnings, of course. The firm’s performance in the first quarter was hampered by continued high interest rates and negative movements in the stock market. This may remain a problem if global inflation remains ‘sticky’.
Exchange?
But on balance, I think things are looking good on the Phoenix line, driven by those demographic opportunities. The outlook is also supported by the expected decline in interest rates over the next few years.
With earnings multiples of less than 10 times over the next two years, I think the risk of growth forecasts is currently factored into Phoenix’s share price.
In fact, with the company also holding those double-digit dividend yields, I think it’s a high-value stock to consider.
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