The board of Phoenix Group Holdings plc (LON:PHNX) has announced that it will pay a dividend on the 31st of October, with investors receiving £0.2665 per share. This will take the dividend yield to an attractive 9.7%, providing a nice boost to shareholder returns.

See our latest analysis for Phoenix Group Holdings

Estimates Indicate Phoenix Group Holdings' Dividend Coverage Likely To Improve

A big dividend yield for a few years doesn't mean much if it can't be sustained. Even though Phoenix Group Holdings isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 42%, so there isn't too much pressure on the dividend. historic-dividend

Phoenix Group Holdings Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was £0.534, compared to the most recent full-year payment of £0.533. Payments have been decreasing at a very slow pace in this time period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Phoenix Group Holdings' EPS has declined at around 46% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Phoenix Group Holdings' payments are rock solid. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Phoenix Group Holdings that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.