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Every time I look at this impressive FTSE 100 Index dividend stocks, I guess I must be missing something.
The company in question is an insurance conglomerate. Phoenix Group Shares (LSE:PHNX). The reason I can't believe my eyes is that it offers an impressive 9.68% yield, one of the highest dividends out there.
The reason I guess I'm missing something is that investors aren't piling in to take advantage of this huge income opportunity.
FTSE 100 Income Hero
Phoenix's share price has plummeted by 22.09% in five years. In 12 months, it is down by 1.67%. Do investors no longer like dividends?
I like dividends, especially big, juicy ones like this one. However, I'm no fool – I know that shareholder payouts can become very vulnerable once yields reach this insane level. No doubt many investors fear that the board will be forced to cut at some point and that the stock will fall as a result.
However, Phoenix actually has a solid track record of growing dividends per share, as my table shows.
| 2015 | 0.4084p |
| 2016 | 0.4084p |
| 2017 | 0.4406p |
| 2018 | 0.4517p |
| 2019 | 0.4680p |
| 2020 | 0.4680p |
| 2021 | 0.4820p |
| 2022 | 0.4960p |
| 2023 | 0.5200p |
While the board froze the dividend in 2016 and again in 2020 during the pandemic, it has typically raised dividends each year.
Dividends will not survive unless companies generate the cash to pay them. Last year, Phoenix set a target of generating £1.8bn in cash. It made £2bn.
Markets seem confident that dividends will continue to grow, with the yield forecast to reach 9.93% this year and 10.2% in 2025. As I said, that's impressive. That's double the income you could get today in an easily accessible savings account.
Phoenix Group could finally rise again
The gap will widen when the Bank of England finally starts cutting interest rates, which could happen as early as tomorrow's meeting on August 1.
Investing in stocks is always riskier than leaving money in the bank, because the capital is at risk. However, in this case, I believe the rewards outweigh the risks. Especially since Phoenix has a strong balance sheet, with a Solvency II capital ratio of 176%. That is close to the upper end of its target range of 140% to 180%.
It is operating in a competitive market as its rivals include FTSE 100 giants. Aviva and Legal and General GroupThe sector has been hit by rising inflation, which is driving up claims costs and reducing the value of the hundreds of billions of dollars in assets they hold to cover their obligations. All three now offer high yields, while their share prices have faltered.
Yes, that is changing. Phoenix’s share price is up 10.66% over the past three months. Are investors finally waking up to the opportunity?
I bought Phoenix stock in January and again in March. I'm up only 5.33%, but I also received two dividend payments. After reinvesting them, my total return is 14.22%.
We are in the early days and I think there is still a lot to do. Even if the share price recovery is postponed again, I still have the income. If more people join my way of thinking, Phoenix could take off. I will buy more in August, if that happens.
