Why did the Phoenix Group share price jump 7% last week?

Phoenix Group is a large-cap FTSE 100 insurance stock with a share price that saw some solid gains last week. This Fool is on a mission to find out why.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

happy senior couple using a laptop in their living room to look at their financial budgets

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Last Friday (3 May), the Phoenix Group (LSE: PHNX) share price shot up from £4.90 to £5.26, representing a 7.35% rise. The sudden movement follows a pattern of volatility that the share price has exhibited throughout this year. In late March, it made a sudden jump from £4.76 to £5.55 before falling back down just as quickly a few days later.

So what prompted this latest increase and will it continue?

Created with Highcharts 11.4.3Phoenix Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Risk reduction

Phoenix Group isn’t exactly a household name, despite a £5.18bn market cap and 167 years in business. Most likely that’s because few people know it’s the parent company of well-known brands Standard Life and SunLife. These are both major insurance firms that serve a decent chunk of the local and international market. 

Should you invest £1,000 in Phoenix Group Holdings Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Phoenix Group Holdings Plc made the list?

See the 6 stocks

However, the firm is better known in investing circles, largely due to its high dividend yield.

One possible reason for the share price increase last Friday was the announcement of early redemption on all the company’s £250m fixed rate tier 2 subordinated notes, due in 2029. In basic terms, this means it’s paying back these riskier (tier 2) types of loans before they mature (or the interest rate increases). This could in part reduce certain risks associated with investing in the stock.

So is now a good time to buy? I’m not so sure.

Where’s the money coming from

With a 10.3% yield, Phoenix Group looks like a no-brainer addition to a dividend portfolio – at first glance. But there are some concerns. The group recently increased its interim dividend to 26p, making its full-year dividend-per-share 53.3p. My concern is how it will continue to pay this dividend, especially considering it has negative earnings.

I can’t fault its track record. It’s been making consistent and reliable dividend payments for the past 10 years. But that doesn’t guarantee it will continue. Not only does it have limited cash flow, its debt of £6.18bn far outweighs its equity of £3.54bn, leaving it with a debt-to-equity ratio of 174%. Assets and liabilities are on par and interest coverage is minimal at 2.3 times, so where’s the dividend money coming from?

My verdict

While the company’s share price is down 10% in the past year, there’s consensus among analysts that things are improving. Earnings grew through 2023, bringing earnings per share (EPS) up from a negative £2.74 to a loss of just £0.13. Analysts now forecast the stock to become profitable in 2025, with future return on equity (ROE) expected to be around 25% in three years.

This clarifies two things: yes, the share price could start improving this year but this rally is probably not where it starts.

Personally, I’d love to rake in the returns of a 10% dividend yield, as I’m sure any investor would. But I can’t ignore the risks present in Phoenix’s balance sheet and income statement. Despite the solid track record, I just don’t see enough evidence to suggest dividend payments will continue uninterrupted. And if the share price continues to decline, it would negate the dividend returns anyway.

As a risk-averse investor, I’d need more concrete proof of stability and growth before I invest in the stock.

But here’s another bargain investment that looks absurdly dirt-cheap:

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Mark Hartley 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

Up 30% in weeks, does the BAE Systems share price still offer value?

The BAE Systems share price has been on a tear over the past couple of months. This writer sees limited…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Hunting for shares to buy as the market trembles? Remember this!

After a choppy week in global stock markets, our writer goes back to basics in his hunt for bargain shares…

Read more »

Investing Articles

3 simple principles to help build wealth in an ISA

As a new tax year opens up new ISA allowances for many investors, our writer shares a trio of things…

Read more »

Investing Articles

US trade tariffs: what they could mean for UK shares like Ashtead, Compass Group, and Experian

US trade tariffs continue to rock global markets, and the UK is no exception. Our writer considers how a new…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Dividend Shares

The Trump slump has smashed these FTSE 100 shares!

After a rough week for US and UK shares, investors have been shaken. But now these FTSE 100 stocks have…

Read more »

Investing Articles

£10,000 invested in Rolls-Royce shares 5 years ago is now worth…

Rolls-Royce shares have been on fire since April 2020. Part of this is the result of pandemic restrictions lifting, but…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£10,000 invested in Tesla stock at its peak in 2024 is now worth…

Over the last few months, Tesla stock has lost nearly half its value. Here, Edward Sheldon explores a few takeaways…

Read more »

Investing Articles

Is the S&P 500 heading for an epic stock market crash?

Our writer shares his thoughts on a very crazy time for the S&P 500 and the wider stock market. How…

Read more »