Phoenix Group Holdings plc (LON:PHNX) stock is about to trade ex-dividend in three days. You will need to purchase shares before the 13th of August to receive the dividend, which will be paid on the 4th of September.

Phoenix Group Holdings's next dividend payment will be UK£0.23 per share, and in the last 12 months, the company paid a total of UK£0.47 per share. Based on the last year's worth of payments, Phoenix Group Holdings stock has a trailing yield of around 6.5% on the current share price of £7.204. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Phoenix Group Holdings

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Phoenix Group Holdings paid out 63% of its earnings to investors last year, a normal payout level for most businesses.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Phoenix Group Holdings's earnings per share have fallen at approximately 5.3% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Phoenix Group Holdings has increased its dividend at approximately 12% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

Final Takeaway

From a dividend perspective, should investors buy or avoid Phoenix Group Holdings? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. Phoenix Group Holdings doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.