Investors on the lookout for high-yield dividend stocks should have FTSE 100 insurer Phoenix Group (LSE:PHNX) on their radars.
This insurance provider, based in London, offers a staggering 9.7% dividend yield, making it one of the most attractive dividend-paying stocks in the market today.
Over the last five years, the share price has been on a steady decline — until recently — and the company has made incremental improvements to its dividend.
The result is a firm with strong cash flows relative to its share price and a huge payout.
Positive developments
Phoenix Group has performed in line with the FTSE 100 in 2024, pushing up around 8.7% over the past six months. That’s great for shareholders, but it does mean that the dividend yield has fallen for new investors.
Those who bought the stock back in February would have locked in a dividend yield around 11%.
Of course, the higher share price that we see today reflects the more positive outlook for the UK economy and Phoenix.
Since the start of the year, the insurer has published some very strong results for 2023, with total cash generation of £2.02bn exceeding its upgraded target of £1.8bn for the year.
At the same time, the company also set out its plan for increasing operating profit through business growth and cost efficiencies.
More recently, Phoenix Group has completed the initial phase of its deleveraging programme, reducing outstanding debt by £250m.
The firm has also announced plans to sell its SunLife business, noting that it was not central to its “delivery of its vision of becoming the UK’s leading retirement savings and income business”.
So, it’s a firm with momentum, making proactive strategic decisions rather than reactive ones. That’s good to see, because the insurance sector is emerging from a tough few years with claims following non-linear trajectories due to the pandemic and surging inflation.
But is the dividend safe?
The company has a history of consistent dividend payments, with a current annual yield of 9.7%.
This high yield is supported by the company’s strong cash flow from operations and strategic asset management.
Over the past five years, Phoenix Group has maintained an average dividend yield of 7.74%, with a growth rate of 2.74% per annum.
One concern would be the coverage ratio, which was 0.62 times last year. While this certainly isn’t pretty, I’d caution that the business’s way of reporting earnings doesn’t lend itself to support this metric.
It can rise further
Analysts have a positive outlook on Phoenix Group. Of the 14 analysts covering the stock, the consensus recommendation includes two Buy ratings, six Outperform, three Hold, and three Underperform ratings, with no Sell ratings. The median price target is 592.50p, representing an 8.32% increase from the current share price.
That’s not to say there aren’t drawbacks. Investors may be concerned with the general downward trajectory of the share price in recent years coupled with falling asset values. Moreover, for the near term at least, the company’s debt levels remain higher than its peers, which is perhaps concerning given higher interest rates.
The bottom line
Personally, I’m a big fan of Phoenix Group. It has positively contributed to my portfolio over the last year, but given my weighting towards insurance stocks, I won’t be buying more.
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James Fox has positions in Phoenix Group Holdings plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
