Prediction: in 12 months, ultra‑high-yielding Phoenix shares could turn £10,000 into…
Phoenix (LSE: PHNX) shares are renowned for offering one of the highest dividend yields on the entire FTSE 100. Today, they deliver a staggering trailing yield of 8.39%. That’s more than double today’s best buy savings rates. Naturally, this kind of income raises eyebrows.
Typically, yields creep to this level only when the share price tumbles, which can trigger doubts over whether the business can sustain payouts. With that in mind, I’ve scrutinised reports from Phoenix Group Holdings, to use its full name, and can find no hint that the income is under immediate threat.
Of course, no one can predict the future. But it’s encouraging that the group has boosted dividends each year for nine straight years, including through the pandemic. Growth is steady rather than reckless. The 2024 rise was a modest 2.56%, taking the annual payout to 54p per share. I find that smooth flow strangely comforting.
Solid fundamentals
The Phoenix share price isn’t a showstopper, but it’s done well lately, climbing 17% in the past year. Over five years it’s pretty much flat though. What really counts here is the income, which compounds over time if reinvested. I’ve held shares for a couple of years, and they’ve delivered almost 20% capital uplift. With dividends, my total return is nudging 40%.
Latest numbers, published 17 March, show operating cash generation rose 22% to £1.4bn. The board raise its three-year target from £4.4bn to £5.1bn as a result.
Adjusted operating profits grew 31% to £825m. Phoenix also repaid £250m of debt and aims to reduce leverage further by 2026. The balance sheet looks solid, underpinning future shareholder payouts.
FTSE 100 dividend star
There’s also talk of a rebrand under the historic Standard Life name. A better‑known name might boost visibility and sentiment, although it won’t change underlying performance. At least, not overnight.
Still, there’s always risk. The UK economy could falter, hitting the value of assets under management. If pension or savings volumes slip, earnings and dividend cover could quickly come under pressure. Phoenix operates in a competitive sector. That’s why diversification into a spread of stocks remains essential. We just don’t know what’s going to happen.
Income and growth
Phoenix now trades on a price‑to‑earnings ratio of just over 14, which is pretty reasonable considering its strong share price run. So what happens next?
Nine analysts produce a median price target of 675p, suggesting a modest increase of 4.4% from today. Add the forecast yield of 8.6%, and total return could reach 13%. That would turning a £10k investment into roughly £11,300.
That may look modest to some but would follow a 25% total return over the past year, showing how stocks like these can steadily compound and build wealth. They just don’t do it in a smooth line.
Five out of nine analysts name Phoenix a Strong Buy, one says Hold, and three Strong Sell. That split surprised me but underlines why a long‑term mindset is vital with dividend stocks.
Phoenix shares aren’t flashy, they don’t make headlines, but their steady income makes them worth considering for anyone happy to think long-term. Investors might consider buying, provided they’re comfortable with slower-paced returns and occasional blips.
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Harvey Jones has positions in Phoenix Group 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.
