Editing Phoenix Group Holdings plc (section)

=== Dividend Discount Model ===

As noted earlier in this report, research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach, so that's the approach that the Stockhub crowd suggests using to determine the estimated value of the company (the valuation based on the discounted cash flow approach can be found in the valuation section of this report); nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the discounted dividend valuation approach.

==== What's the expected return of an investment in Phoenix using the discounted dividend valuation approach? ====
The Stockhub crowd estimates that the expected return of an investment in Phoenix over the next five years is 134%, which equates to an annual return of 19%. In other words, an £1,000 investment in the company is expected to return £2,343 in five years time. The assumptions used to estimate the return figure can be found in the table below.

==== What are the assumptions used to estimate the return figure? ====
{| class="wikitable"
|+Key inputs
!Description
!Value
!Commentary
|-
|Which model do you want to use?
|Gordon growth model
|The CFA institute recommends using the Gordon growth model (GGM) for companies with stable and predictable dividend policies.
|-
|What is the expected dividend in the next period (i.e., the next year)?
|53.75p
|Phoenix's most recent full-year dividend is 52.65p (FY23). Multiply that by the below growth rate (1.75%) equates to 53.75p per share.
|-
|What is the required rate of return or cost of equity?
|8.64%
|The assumptions for this can be found in the cost of equity table in the appendix of this report.
|-
|What is the expected growth rate of dividends?
|1.75%
|Since Phoenix's inception, its dividend CAGR is 1.75%, so the Stockhub crowd suggests using that amount here.
|-
|Which financial forecasts to use?
|The Stockhub crowd
|The only available forecasts are the ones that are supplied by the Stockhub crowd (the forecasts can be found in the financials section of this report), so the Stockhub crowd suggests using those.
|-
|What's the current value of the Phoenix company?
|£5.03 billion
|As at 16th November 2024, the current value of its company at £5.03 billion.<ref name=":9">https://www.telegraph.co.uk/business/2023/06/13/freetrade-stock-trading-start-up-valuation-plunge/</ref>
|-
|Which time period do you want to use to estimate the expected return?
|Between now and five years time
|The Stockhub crowd suggests that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time.
|}

==== Sensitivity analysis ====
The main inputs that result in the greatest change in the expected return of the Phoenix investment are, in order of importance (from highest to lowest):   

#The expected growth rate of dividends (the default rate is 1.75%);
#The expected dividend amount in the next period (the default amount is 53.75p); and
#The required rate of return or cost of equity (the default rate is 8.64%).

The impact of a 50% change in those main inputs to the expected return of the Phoenix investment is shown in the table below.

{| class="wikitable sortable"
|+Phoenix investment expected return sensitivity analysis
!Main input
!50% worse 
!Unchanged
!50% better
|-
|The expected growth rate of dividends
|75%
|134%
|413%
|-
|The expected dividend amount in the next period
|17%
|134%
|251%
|-
|The required rate of return or cost of equity
|106%
|134%
|171%
|}