| Phoenix Group (PHNX) - Is This The Ultimate Share To Own For Those Approaching Retirement?

1st Feb by Sanjay

17 comments 1296 reads

If you bought 1000 Phoenix group (LON:PHNX) shares now for £5.15 with yield of 10.2% - if you assume the dividend never goes up (it does) then your shares would be free after 7 years.

*** Correction**** From the 8th year onwards you would have an income of over £1K per year (compounded and growing) which if you bought an annuity would cost you £20K to achieve.

Additional bonus when you die that asset would be passed onto your children unlike an annuity.

Obviously this assumes the company continues to pay a dividend, but you would have hopefully capital gain as well.

Isn't this the ultimate share for those within 5-10 years of retirement?

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Sanjay

Premium Member

17 comments

Trevor Sherling

1st Feb

Great point. Very good statement this morning. BUT why do institutions not like it?

whatmore1951

1st Feb

Thanks for kick starting this. The short answer is yes although I would make it part of a portfolio of similar shares. I would include M&G (LON:MNG) Legal & General (LON:LGEN) and maybe Aviva (LON:AV.) . (I hold these as a mini portfolio to provide (hopefully) a safe-ish income in retirement.

John Lee likes all of these and he is usually correct in his analysis.

Add a mini portfolio of carefully selected REITs to give income and some protection against inflation and you are well on the way to a decent retirement income whilst leaving wealth for your kids.

All in my opinion although I was a pension scheme trustee for 25 years and thus have been involved in buying annuities.

rpannell

1st Feb

> From the 8th year onwards you would have an income of over £5K per year

I calculate this to be over £1K per year, not over £5K per year. What am I missing?

Lincs

1st Feb

I hold PHNX and think it a great investment but I can't follow your arithmetic. Assuming divi never rises and neither does SP and that you re-invest all of your divis you could accumulate around 2156 shares by year 8. If the divi & the SP stays the same then you receive around £1132 divi from those shares by year 8. I cannot see where you have got your £5k from - unless you've made some guesses as to future prices? Can you elaborate on how you arrived at £5k per annum in divis.

Sanjay

1st Feb

You are right - have corrected the post.

Sanjay

1st Feb

You are right have corrected the post.

Sanjay

1st Feb

It is ironic that Phoenix Group (Standard Life) look after my company pension.

Sanjay

1st Feb

I have Legal & General (LON:LGEN) and a number of ETFs and other shares - I am using a SIPPs and ISAs as much as possible to ensure hopefully comfortable retirement in the next 5 years.

Whilst most plans seem to move more into bonds - I am not sure I will do this and these seems to indicate moving to bonds may not be optimum:

Trader Jack

2nd Feb

Sanjay - I don’t agree as in my book (I’m 66 & will draw my pension within the next 5 years) total return is what counts. Compare PHNX with Jpmorgan Global Growth & Income (LON:JGGI) , Pershing Square Holdings (LON:PSH) & 3i (LON:III) for example, over the last 5 years ( or just about any period).. I know past performance isn’t a guide, but history usually rhymes…. Yes, I hold some stocks for income such as Supermarket Income REIT (LON:SUPR, TP Icap (LON:TCAP) & Twentyfour Select Monthly Income Fund (LON:SMIF, so I don’t have to sell capital units in a bear market, but high income stocks can be very beguiling IMO! TJ

Sanjay

2nd Feb

I get your point - capital appreciation also has to be in the mix that is why I have growing ETFs in my portfolio which are doing well.

I guess I am treating Phoenix group (LON:PHNX) dividends as as type of a bond income and assuming they will pay that even if the markets go down which would affect their and other stock prices.

Additionally, I am hoping that UK stocks and especially finance sector ones which have been out of favour eventually come back and there will also be some capital appreciation too.

As with anything, some diversification is a good thing.

littledavesab

3rd Feb

Maybe the % yield is the markets way of saying it thinks it is unsustainable. Which in turn suggests buy backs by the company might be better than increasing the divi in the future.

ken mitchell

4th Feb

littledavesb

The reason the dividend yield for shares like Phoenix group (LON:PHNX) (10.3% yield) Aviva (LON:AV.) (7.5%) M&G (LON:MNG) (9%) Legal & General (LON:LGEN) (7.8%) is so high reflects not the unlikely risk of a cut but the fact that these shares, like so many UK shares are ludicrously cheap. i.e it reflects the underperformance of the UK market for so long.

The above shares have been increasing their dividends year by year most years and that could well continue.

Look at the Legal & General (LON:LGEN) dividend history in this link:-

https://www.dividenddata.co.uk...

Regardless of the case for or against buybacks, as a holder of the above 4 shares and others paying equally high or even higher dividends I want to get that REAL money and buybacks don’t do that.

These shares have been even cheaper. e.g I added to my long term Legal & General (LON:LGEN) stake at just 155p in 2020 and the dividend on the shares I bought at that price is 13%. A lot of investors fail to see the attractions of big dividends, but I love them AND they and not new cash fund nearly a good chunk of my share and Investment Trust buys.

ShoeShineBoy

4th Feb

The big dividend payers Legal & General (LON:LGEN), Aviva (LON:AV.), M&G (LON:MNG) and Phoenix group (LON:PHNX) get a mention towards the end of the latest IC interview with John Lee who says he hasn't really done anything with his holdings at all. No buying or selling. Just holding and monitoring. His plan is to hopefully leave his holdings where they are and let the dividends get paid again and then decide where to reinvest that income.

I hold Aviva (LON:AV.) and Legal & General (LON:LGEN). Can't make my mind up on M&G (LON:MNG). I was looking at it last October and then of course kept looking as the markets went up! It should go ex-div in mid-March with the larger of the 2 payments it makes every year. I'm still tempted on a PE of 9. John Lee has previously said he sees it as a potential takeover target.

Concurrent Technologies (LON:CNC) also gets discussed which is an interesting (potential) growth option.

Well worth a listen.

http://tinyurl.com/2ck6kbft

SSB

Sanjay

5th Feb

As an additional point, as well has holding these in a SIP, I am buying in an ISA - this will ensure some tax free income when I retire.

Sanjay

25th Mar

Looking good for the future - grew dividend and positive outlook.

Hopefully, will grow as a stock too.

Boon

25th Mar

I think it is dangerous to assume that Phoenix group (LON:PHNX) business model has no or very little risk; on the contrary, it has quite large risks around future assumptions (mortality, etc). The quantity if they get it wrong is large, albeit the chance of the risk is low. It is also an industry that is regulated to the nth degree now by the government, so hopefully this regulatory stranglehold has done the job of reducing the chance of risk to miniscule.

The margins are getting tighter. It used to be there were few DB and life insurance consolidators, so Phoenix could buy closed books cheaper and with a fat margin. Now there are many players in the market, and the bidding is more intense, so buyers are having to pony up more, and "margin" is being hit.

However, I think the market is already pricing this in, given the current PE and dividend yield. That Phoenix will struggle to increase FCF and therefore progressive dividends much more than the current plan.

For me there are two pathways for Phoenix, in the short term:

- Interest rates drop quite a bit, and the shares go up, as the dividend yield goes closer to 7.5% than 10%.

- Interest rates stay elevated. Phoenix stays around this share price, yielding 10%. I've picked up a 10% return in a year. Not bad.

- (there is a third where something goes horribly wrong with either the actuarial assumptions, or their asset investment strategy, and Phoenix takes a big hit. But what are the probabilities of this happening?)

(I hold in the Boon Fund)

Sanjay

4th Apr

Good to see we have capital growth as well as big dividend with the outlook looking good.

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Phoenix Group (PHNX) - is this the ultimate share to own for those approaching retirement?

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Sanjay

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