10.5% yield but down 28%! Should I buy more of this dirt-cheap UK share?
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One UK share has baffled me for a while. Which is a fear, since I personal it. On the face of it, this prime FTSE 100 dividend earnings inventory appears like a superb long-term buy-and-hold, but its shares have failed to satisfy their apparently big potential
The inventory in query is insurer and closed-book pension supplier Phoenix Group Holdings (LSE: PHNX). Proper now, it has a trailing yield of a fairly gorgeous 10.49%. On the FTSE 100, solely Vodafone Group pays extra (and its payout is about to be slashed in half).
The Phoenix dividend at all times regarded somewhat bit too good to be true however I made a decision it actually was reasonably priced, and the board appeared assured too. I wouldn’t have purchased the shares in any other case.
This inventory is falling quick
Phoenix shares have been dust low-cost after I purchased them and stay so right this moment, buying and selling at 6.19 instances earnings. I purchased hoping they might get well however as an alternative they preserve sliding. They’re down 27.95% over 5 years, and 10.34% during the last yr.
It’s down 4.5% in early buying and selling this morning, making this the most important faller on the FTSE 100. This follows a worrying report in yesterday’s Sunday Occasions that Phoenix is setting apart £70m to chop charges because it battles to satisfy the Monetary Conduct Authority’s new shopper obligation necessities. That’s on prime of the £68m it has already spent eradicating exit charges.
The brand new shopper obligation regime got here into power for many of the monetary providers trade final July, and brought on havoc at FTSE 100-listed advisory agency St James’s Place, which was compelled to scrap exit penalties and slash buyer expenses to conform.
It would apply to closed-book merchandise from 31 July this yr, and it’s a giant deal for Phoenix, which has round £119bn of its complete £269bn of belongings in closed-book merchandise.
It could possibly be a FTSE 100 flop
We’ll study extra when full yr outcomes are printed on Friday 22 March, however the report has added an enormous new layer of uncertainty for buyers like me.
The stakes are excessive too. The St James’s Place share worth has been hammered, crashing 65% over the previous 12 months. If Phoenix suffers something like that, the excessive yield is not going to compensate. Plus the dividend could also be on the road. St James’s Place slashed its dividend in half and lower share buybacks too.
I received’t be promoting my stake in Phoenix. I’m bracing myself for a bumpy trip although, and making an attempt to study classes. Clearly, buyers can not foresee every bit of dangerous information, however I hadn’t learn concerning the shopper obligation problem till right this moment. But I sensed one thing was up. The inventory actually ought to have been doing higher.
Ought to I take this chance to purchase extra? That will be a punt, provided that I don’t know what we will anticipate on Friday. I’ll maintain what I’ve acquired and take any punishment on the chin. Subsequent time I see one thing that appears too good to be true, I’ll dig loads deeper.