Interactive Investor

ii view: high yielder Phoenix Group raises the dividend

13th March 2023 11:40

by Keith Bowman from interactive investor

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This life and pensions industry consolidator has around 12 million customers and offers an attractive dividend yield. Buy, sell, or hold? 

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Full-year results to 31 December 2022

  • Adjusted operating profit up 1.2% to £1.25 billion 
  • Cash generated down 12% to £1.5 billion
  • Final dividend up 5% to 26p per share
  • Total dividend for the year up 4% to 50.8p per share

Chief executive Andy Briggs said:

"Phoenix has a simple strategy that is focused on the UK long-term savings and retirement market. We have continued to make excellent progress across all areas of that strategy in 2022, despite the challenging economic backdrop.”

ii round-up:

Life and pensions company Phoenix Group Holdings (LSE:PHNX) today detailed cash generation ahead of management’s prior forecast, helping it declare a 5% increase in its dividend payment. 

Full-year 2022 cash generated of £1.5 billion came in ahead of its previous guidance of up to £1.4 billion, pushing the final dividend payment to 26p per share, up from 24.8p last year.  The buyer of rivals and owner of brands including SunLife outlined a new three-year cash generation target of £4.1 billion. 

Against the backdrop of weaker global stock markets following the collapse of US bank SVB, shares in the £6 billion FTSE 100 company fell by 3% in UK trading having come into this latest news little changed over the last year. That’s similar to Legal & General Group (LSE:LGEN), although that contrasts with a 10% gain for Asia focused Prudential (LSE:PRU)

Phoenix has bought and integrated over 100 legacy insurance brands. It operates both closed or heritage and open businesses. The heritage business comprises products that are no longer marketed to customers, and where Phoenix has stepped in as the custodian of the policies.

Record new business growth of £1.2 billion added to its £248 million acquisition of Sun Life of Canada UK during the year, helping adjusted operating profit improve 1.2% to £1.25 billion.  

A capital cushion, or solvency ratio, of 189% remains above management’s target of 140-180%, offering capacity to invest for further growth. Cash generation for the year head is expected to come in at between £1.3 billion and £1.4 billion. 

Phoenix’s AGM is scheduled for 4 May. 

ii view:

Intense competition and pressure on life and pensions providers to reduce costs has allowed Phoenix to grow via acquisitions and then strip costs. Once well-known brands such as Pearl Assurance and Abbey Life are now both part of Phoenix. Its open business today includes workplace pensions and customer savings divisions. It has around 12 million customers with assets under administration totalling £259 billion. 

For investors, a cost-of-living crisis for consumers could see savings sacrificed to pay higher energy and mortgage bills. Rising interest rates continue to provide a tough backdrop for markets, with assets under administration down 16% year-over-year to £259 billion, while competitors such as Aviva (LSE:AV.) are not standing still. 

On the upside, new acquisitions such as Sun Life of Canada UK continue to be identified. Its array of brands includes Standard Life UK and Europe, ReAssure, and Pearl Life, while record new business growth has been helped by demand for Bulk Purchase Annuities from corporate customers. 

For now, and with the shares sat on a historic and estimated forward dividend yield of around 8%, income focused investors are likely to remain fans. 

Positives: 

  • Ongoing acquisitions
  • Attractive dividend payment (not guaranteed)

Negatives:

  • Regulatory changes can impact
  • Uncertain economic outlook

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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