Phoenix Group (LSE:PHNX) shares get lots of attention from investors because of their huge dividend potential.
This isn’t surprising. At 11.1%, the financial services provider has the largest forward dividend yield on the FTSE 100 today. Phoenix also has a long record of dividend growth, with cash payouts having risen in nine of the last 10 years.
What gets less focus is the company’s colossal growth potential. Earnings rose 38% year on year in 2023. And City analysts expect them to continue growing strongly through to 2026 at least, as the table below shows:
Year
Earnings per share
Annual growth
Price-to-earnings (P/E) ratio
2024
45.27p
38%
10.8 times
2025
55.08p
22%
8.9 times
2026
62.31p
13%
7.8 times
Phoenix’s share price is down 9% in 2024, and has slumped more recently over moderating expectations on interest rate cuts. But if City forecasts start to look accurate, I’d expect its shares to spring higher again.
But how accurate are current earnings estimates? And should investors consider Phoenix shares for their portfolios?
Turning the corner
After earlier interest rate shocks, Phoenix bounced back strongly in 2023 and hit its growth targets way ahead of schedule.
It enjoyed strong demand at both its Pensions and Savings and Retirement Solutions divisions, the latter driven by a boom in bulk purchase annuities (BPAs). This meant it achieved incremental new business long-term cash generation of £1.514bn, hitting a target of £1.5bn two years ahead of plan.
Phoenix’s trading performance has remained rock-solid since then. Adjusted operating profit leapt 15% in the six months to June, helped by strength across its product ranges as well as widespread cost-cutting.
Impressively, total cash generation also rose 6% year on year to £950m, and its Solvency II ratio was 168% as of June, at the top end of its 140-180% range. This is significant, as Phoenix has the strength to invest for growth while also continuing to pay its large dividends.
Looking good
But can the business keep its impressive run going? I think it can. It has massive structural opportunities to capture, as the world’s rapidly ageing population drives demand for pensions, wealth and retirement products.
And Phoenix has well-loved brands it can use to exploit its growing market. The likes of Standard Life and SunLife have around 12m customers on their books.
There are still risks to company earnings, of course. The firm’s first-half performance was dented by the continuation of higher interest rates and adverse movements on equity markets. These could remain problematic too if global inflation stays ‘sticky’.
A bargain?
But on balance, I think things are looking good for Phoenix’s bottom line, driven by those demographic opportunities. The outlook’s also supported by an expected fall in interest rates over the next couple of years.
With earnings multiples below 10 times for the next two years, I think the risks to growth forecasts are currently baked into Phoenix’s share price.
In fact, with the company also carrying those double-digit dividend yields, I think it’s a top value stock to consider.
The post Here’s the growth forecast for Phoenix Group shares through to 2026! appeared first on The Motley Fool UK.
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy — and discover:
Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
How to potentially get paid by the weather
Electric Vehicles’ secret backdoor opportunity
One dead simple stock for the new nuclear boom
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
More reading
These FTSE 100 stocks have 10% yields! Should I buy now?
Investing £100k in this share could add £1.2m to my SIPP valuation!
I’d consider this beaten-down FTSE 100 dividend stock to target a second income of £19,000
Could putting £20,000 into FTSE 100 stocks get me monthly passive income of £2,756?
A closer look at the 11% dividend yield forecast for Phoenix Group shares
Royston Wild has no position in any of the shares mentioned. 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.
