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When searching down one of the best earnings shares, numerous traders are tempted by the promise of excessive yields. Usually, these beneficiant payouts aren’t sustained, leading to shareholders being lured right into a lure. However each on occasion, an exception emerges. And traders get the uncommon probability to lock in each a excessive payout and a protracted monitor file of dividend mountain climbing exercise.
One such instance of this could possibly be Phoenix Group Holdings (LSE:PHNX). The insurance coverage big presents a formidable 8.6% yield proper now, comfortably coated by increasing working money flows which have led to a decade of payout hikes.
So is now the time to think about including this earnings inventory to a portfolio?
Inspecting the chance
As a fast crash course, Phoenix is an evolving life insurance coverage enterprise. Traditionally, it specialised to find and shopping for closed books of in-force life insurance coverage and pension insurance policies, letting them run to generate a predictable money movement. However in more moderen years, it’s shifted its core technique to change into a extra full insurance coverage enterprise with a various assortment of pension and annuity merchandise.
Whereas this transfer launched numerous execution and aggressive dangers, up to now, Phoenix appears to have risen to the problem, delivering stable monetary efficiency that has continued to help dividend progress.
By timing the transition with a interval of rising rates of interest, Phoenix has loved capital momentum that has continued into 2025.
In flip, working money flows have expanded by 9% to £705m throughout the primary half of the 12 months, greater than sufficient to cowl the £274m in dividends paid. And with a powerful annuities pipeline, analysts proceed to be optimistic for bigger shareholder rewards over the following two years.
What might go unsuitable?
Whereas Phoenix is performing admirably immediately, some notable macroeconomic threat components might interrupt the method. Increased rates of interest have been a terrific boon. However with the Financial institution of England beginning to ease its financial coverage by slicing charges, the gravy practice appears to be slowing.
Consequently, there are rising considerations of harder comparables on the horizon for each income and, extra importantly, money movement.
To administration’s credit score, efforts to ship value financial savings and scale back steadiness sheet leverage are anticipated to offset a few of the influence of looming headwinds. However whether or not that will probably be adequate to keep up the dividend mountain climbing streak stays a major supply of uncertainty.
The underside line
All issues thought of, Phoenix Group seems to be well-positioned immediately. At a ahead price-to-earnings ratio of 9.4, the earnings inventory doesn’t commerce for a demanding valuation. However very like its substantial dividend yield, this can be a reflection of the macroeconomic threat connected to this enterprise.
Such alternatives are at all times price investigating. However traders should contemplate rigorously whether or not the excessive yield is well worth the macro dangers. Personally, I’m taking a look at different earnings shares for my portfolio.
