The FTSE 100 is jam-packed with value stocks after recent dips and I’m hunting around for the best buying opportunities.
A value stock is a company whose fundamentals such as dividends, earnings and sales all suggest its share price should be higher. Typically, it will trade at less than 15 times earnings, and may offer a decent dividend to boot.
A quick glance reveals 15-20 FTSE 100 stocks that broadly fit the bill. Lately, I have scooped up Glencore, Lloyds Banking Group, Legal & General Group, M&G and Taylor Wimpey. Here’s another that looks terrific value.
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Insurer Phoenix Group Holdings (LSE: AAL) is really cheap, trading at 6.2 times earnings and yields a blockbuster 10%. I usually approach a double-digit yield with caution, but this one could prove sustainable. Markets expect it to hit 10.4% next year, covered 1.5 times by earnings.
Inevitably, the Phoenix share price hasn’t exactly flown. In fact, it’s crashed 22.02% over the last year, and price falls are a risk as they dent overall returns. It’s been hit by volatile stock markets, with assets under management falling 16.5% to £259bn last year. Largely as a result, it posted a pre-tax loss of £2.26bn for 2022.
Yet this isn’t a complete disaster because adjusted operating profits edged up to £1.24bn on an IFRS basis. That allowed the board to hike the full-year dividend by almost 4%, to 50.8p per share. As my table shows, dividend progression has been solid (but not spectacular) and is forecast to continue in 2023.
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023* | |
| Dividend per share | 46.00p | 46.80p | 47.50p | 48.90p | 50.80p | 53p* |
Phoenix built its name buying up legacy pension and life funds that were closed to new business. It’s aiming to sustain momentum through acquisitions and owns Standard Life, Pearl Assurance and Sun Life. Interestingly, all these brands are better known than Phoenix, which is yet to build a profile of its own.
Last year, the group generated £1.5bn of cash, just ahead of guidance, which should help fund its shareholder payouts. The board is now targeting organic growth of around £1.5bn of incremental new business long-term cash generation by 2025.
This stock could fly
CEO Andy Briggs acknowledged back in March that 2023 presented “a challenging economic backdrop” and arguably things have got worse since then. Interest rates are above 5% and inflation still isn’t under control.
Now we have a Chinese property market meltdown, driving further FTSE 100 volatility.
Its interesting to compare Phoenix to similar FTSE 100 financial stocks, such as Aviva, L&G and M&G. All are cheap. All offer huge yields. And what they all need is a solid stock market recovery to lift their spirits (and share prices). I assume that won’t come until interest rates peak and fall, which may not be until next year.
I’d like to buy Phoenix before that happy day arrives. If I invested an entire £20k Stocks and Shares ISA I’d be looking at income of £2,000 this year. That is, of course, as long as the dividend stayed high and I didn’t lose money from a falling share price.
I’m not brave enough to go the whole hog, but I’m tempted to invest £5,000. That would give me starting income of £500 a year, which still looks jolly impressive to me.
