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Congratulations Phoenix group holdings (LSE: PHNX) in the FTSE 100The highest dividend yield!
As I write, the yield has increased to 11.01%. That’s not just high, it’s stratospheric. The best stocks in the world rarely offer this much passive income. If it were reliable performance, I would buy it in a heartbeat.
Reliability is the key issue here. Is this important payment just a glimmer of light? Or can I count on great income for years and decades to come? Here is my opinion, plus whether I will buy here or not.
Just a few months ago, the yield stood at just 8%. Since then, the share price has been falling, falling about 28% from its February high. The fall in the value of the shares raised the yield to its figure of 11%.
So the payout has gotten higher and higher, and yet investors continue to flee the stock. So what is going on?
Insurers suffer
Well, a large part of the business is the management and acquisition of life and pension funds. In short, they manage a lot of money (a balance sheet in the hundreds of billions) and pay that money back in insurance payments.
These liabilities need to be trusted, so insurers like Phoenix buy sure-yielding bonds. However, high interest rates, like those we face right now, make bonds purchased at lower interest rates worth less.
The current economic environment also poses other problems, such as inflation, which means people have less cash to take out policies.
All insurance companies have been suffering lately. This is why the share prices of other FTSE 100 insurers like Aviva and Legal & General They are also falling.
There are parallels with the collapse of Silicon Valley Bank earlier this year. Rising interest rates reduced asset values. When customers asked for their money, the bank could not return it. But Phoenix doesn’t face the same problem.
Dividend forecasts
It’s not a bank, so the lines on the street of worried people demanding their money are not the problem. It has taken a hit on its assets, and this will get worse as interest rates remain high, but I would say we could have an undervalued opportunity here.
Dividend forecasts for the next two years are increasing. It’s true that last year’s earnings showed a net loss of a couple billion, but accounting is rarely straightforward at a financial company. In fact, the next few years of dividends are already in the balance. I don’t see the dividend being threatened in the short term. But in the long term?
Great balance
Well, looking ahead beyond a few years is difficult. Again, this is a financial company that carries its own unique risks. It has a gigantic balance that is not easy to understand. This is what has deterred me from purchasing before.
Still, it’s hard not to see the opportunity here. I added the stock to my watch list and may buy it soon.
