Life assurance and pensions industry consolidator Phoenix Group Holdings (LSE: PHNX) is a perennial star dividend stock.
It also has a great business model, turned in terrific results in 2022, and even raised its payout by 5%. The final figure came in at 26p per share, making the total dividend 50.8p.
And all this can be bought at a share price 17% less than the traded high this year.
Stellar payouts
At around £5.35 per share now, the yield is 9.5%. This compares to a current average yield for FTSE 100 companies of 3.65%.
In 2022, the company paid 8.3%, in 2021 it paid 7.5%, and in 2020 it paid 6.8%. This annual increase is in line with plans to sustainably grow dividends over the next few years.
It should be noted that these returns were generated when many other companies found market conditions extremely difficult. 2020 saw the widespread onset of Covid, of course, which continued to disrupt markets through 2021. And 2022, saw more market chaos after Russia invaded Ukraine in February.
Great scope for further growth
Yet Phoenix survived and prospered. In its 2022 results, it announced an admittedly small 1.2% rise in adjusted operating profit to £1.25bn.
It also announced cash generation of £1.5bn, ahead of its previous guidance of up to £1.4bn.
This was all done while maintaining a solvency ratio of 189%, well above management’s target of 140%-180%. This on its own offers enormous scope for further investment for growth.
Additionally positive for its 12 million customers is that it is not involved in the liability-driven investment market. This nearly collapsed during the ill-fated mini-budget in September 2022.
What’s in a name?
Phoenix Group Holdings is a core part of the portfolios of many big fund management firms, simply for this dividend. Others held it for the possibility of share price gains even before the 17% drop in price this year.
For smaller investors, it seems to me that it is often overlooked simply because it is not a well-known name.
Some brands in the same business — such as Standard Life, Pearl Assurance, or Sun Life – are much better known. But all of these businesses are part of Phoenix Group Holdings.
Some of these pension and life insurance plans are no longer taking new clients. These are part of Phoenix Group Holdings’ heritage business.
And the company believes there is around £480bn in UK heritage insurance plan assets still available to buy.
The other part of its operations is to generate more business. In 2022, it recorded new business growth of £1.2bn.
The key risk in the stock for me is continued high inflation. This tends to push insurance premiums higher and prompt customers to cancel policies. Or companies must absorb the inflationary impact, which leads to lower profits.
However, if I did not already have holdings in the sector I would buy this stock now. The dividends alone are stellar, but I also hope the share price will recoup all its losses this year.
