Don't Buy Phoenix Group Holdings plc (LON:PHNX) For Its Next Dividend Without Doing These Checks
Readers hoping to buy Phoenix Group Holdings plc (LON:PHNX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 13th of August, you won't be eligible to receive this dividend, when it is paid on the 4th of September.
Phoenix Group Holdings's next dividend payment will be UK£0.23 per share. Last year, in total, the company distributed UK£0.47 to shareholders. Calculating the last year's worth of payments shows that Phoenix Group Holdings has a trailing yield of 6.5% on the current share price of £7.204. If you buy this business for its dividend, you should have an idea of whether Phoenix Group Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Phoenix Group Holdings
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Phoenix Group Holdings is paying out an acceptable 63% of its profit, a common payout level among most companies.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Phoenix Group Holdings's earnings per share have fallen at approximately 5.3% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Phoenix Group Holdings has delivered 12% dividend growth per year on average over the past 10 years. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
Final Takeaway
From a dividend perspective, should investors buy or avoid Phoenix Group Holdings? We're not overly enthused to see Phoenix Group Holdings's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Phoenix Group Holdings. Be aware that Phoenix Group Holdings is showing 4 warning signs in our investment analysis, and 2 of those don't sit too well with us...
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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