As a long-term value investor, I’m always looking out for undervalued, overlooked and unloved companies. Currently on my deep-value radar are Phoenix Group (LSE: PHNX) shares. This company buys, manages and runs unwanted pension and insurance funds.
Bottom-fishing for value
Recently, I noticed that the shares were among the FTSE 100 index’s worst performers over one, three and six months. Such sagging stocks often catch my eye, because they may be ‘fallen angels’ due for a rebound.
On Friday (13 October) the share price closed at 464.3p, valuing this firm at £4.6bn. This puts this business in the smaller group of FTSE 100 members.
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What also drew my attention is that the stock is only 3.3% above its 52-week low of 449.3p, hit 10 days ago on 4 October. This leaves the shares 28.2% below their 52-week high of 647p seen on 2 February.
To round off the share-price action, the shares are down 11% over one year and 26% over five years. But these returns exclude cash dividends, which are incredibly generous from this group.
A torrent of cash
For the record, my wife and I bought shares in this asset aggregator in August. We paid an all-in price of 544.4p a share. Therefore, we’re sitting on a paper loss of 80.1p per share — down 14.7% to date.
However, as I mentioned above, Phoenix stock pays bumper dividends to its patient owners. Here are the past five financial years’ cash payouts:
| Year | Cash dividend | Increase |
| 2022 | 50.8p | +3.9% |
| 2021 | 48.9p | +2.9% |
| 2020 | 47.5p | +1.5% |
| 2019 | 46.8p | +1.7% |
| 2018 | 46.0p | N/A |
From 2018 to 2022, this stock paid out 240p in cash. That’s more than half of Phoenix Group’s current share price of 464.3p. In other words, this is a dividend dynamo, funnelling cash back to its owners each year.
What’s more, this stock pays an interim dividend of 26p a share on 23 October, having gone ex-dividend on 28 September. Adding this 26p to the current share price boosts our return significantly.
What next for the stock?
Thanks to big hikes to UK interest rates, business is booming this year for Phoenix Group and its rivals, as companies seek to rid themselves of legacy pension funds.
However, I feel that this trend has not yet been factored into the share price. As a result, the stock’s dividend yield of 11.2% a year is the FTSE 100’s highest. And that’s why we added it to our family portfolio.
Of course, future dividends aren’t guaranteed, so they can be cut or cancelled without notice. For example, this happened often during the Covid-19 crisis of 2020-21. And when dividends fall, share prices usually follow suit.
Then again, Phoenix Group’s board expects to keep increasing its cash payout for the next two years, which is a positive. So we’l keep a tight grip on our shares for now!
