I love it when a FTSE 100 stock that’s been nesting quietly in my self-invested personal pension (SIPP) suddenly chirps into life.
That’s just happened to insurer Phoenix Group Holdings (LSE: PHNX). I bought its shares twice in 2023, but they didn’t do much. Just sat there snoozing away in my SIPP.
Occasionally, Phoenix would stir into life and squeeze out a dividend, which was greeted warmly chez moi. Phoenix yields a whopping 10% a year, the highest on the entire blue-chip index.
I had two concerns, though. Was the dividend really sustainable? And would the sleepy Phoenix share price ever spread its wings?
Can the Phoenix share price fly?
I was worried that all my dividends would be wiped out by capital underperformance. Then, on 17 March, I got a nice surprise.
The group published full-year results showed operating cash generation jumped 22% to £1.4bn in 2024, hitting its 2026 target two years early.
Phoenix also raised its final dividend by 2.6% to 27.35p per share. While that’s not a huge hike, I won’t complain given the size of that yield.
Over the last month, Phoenix shares have jumped almost 15%. They’re up just 8% over 12 months, though, and a meagre 3% over five. That shows how they struggled before.
After the share price bounce, I was hungry to up my stake in Phoenix, but held off. Stocks often dip after a sharp rally as investors lock in profits.
But I had a deadline approaching: Phoenix goes ex-dividend on 3 April. If I wanted my next payout, I had to put down the money. So, on Tuesday (25 March) I bought more.
Now, I’m looking foward to a bumper payout on 21 May, which will be bigger than the last one for two reasons. First, the dividend has been increased, and second, I hold more shares, having reinvested my last payout AND topped up my holding.
What’s next for this FTSE 100 income hero?
I’m still not expecting fireworks from the share price. The 15 analysts tracking the stock have set a median 12-month target of 603.5p, suggesting modest growth of 4.3%. But with Phoenix forecast to yield 9.7% in 2025 and 9.97% in 2026, I can live with that.
Total return is what really matters, and with my Phoenix shares already up 12%, my overall return stands at 27% with reinvested dividends. And these are very early days. I plan to hold Phoenix for years and years.
Of course, there are risks. While the dividend looks sustainable at the moment, there’s no guarantee that will continue. Phoenix needs to keep generating plenty of cash to fund it. It started off by buying up legacy ‘closed’ policies from insurers, with the aim of running them more efficiently.
While it’s branching out into other financial services sectors, it still needs to keep finding new sources of revenues in a competitive market. Any share price volatility could easily wipe out my income gains.
Naturally, I haven’t put all my eggs in one basket. My SIPP holds around a dozen income stocks. Most have lower yields than Phoenix, but higher growth prospects. I think I’ve got the balance roughly right. Now roll on 21 May – I’m ready for my next Phoenix dividend.
This post was originally published on Motley Fool
