It’s been a good year for the insurance sector in general, and Legal & General Group (LSE: LGEN) (NASDAQOTH: LGGNY.US) has done especially well, with an impressive 47% rise in its share price to 214p while the FTSE 100 has only managed 13%.
On top of that, the Legal & General dividend is a pretty nice one, with 2012’s full-year payment representing a yield of 5.3%.
Nice future
Forecasts suggest 4.3% for the coming year-end at 31 December, but that lower yield is purely due to the higher share price — the dividend itself is expected to be lifted by 20% to around 9.1p per share.
And that comes after a very impressive few years on the dividend front — it was cut by just 5.4% in the crunch year of 2009, but since then we’ve seen annual hikes of between 20% and 35%!
And if predictions turn out to be accurate, we should see a further 15% dividend rise for 2014 — a slightly smaller, but still impressive, rise as the company gets back to a sustainable high payout.
What of performance this year so far?
Great start
At half time, Legal & General reported a 13% rise in pre-tax profit compared to the first half of 2012, up to £529m, with earnings per share up 13% to 7.82p. The interim dividend was raised by 22% to 2.4p per share, which bodes well for full-year rewards.
The firm also saw net cash inflow up, annuity sales up, and UK insurance premiums up — and increased its return on equity to 16.8% from 15.8% a year previously. At the time, chief executive Nigel Wilson said he was “excited about the future for Legal & General“.
On 5 November we had a third-quarter update, which told us that investment gross inflows were up 71% to £145bn, with assets under management up 2.3% from the halfway stage to £443bn. This time Mr Wilson told us that “We are executing well and at pace; four acquisitions have been successfully completed and net cash is up 20%“.
He also pointed out that Legal & General Investment Management’s fees average just over 0.1%, and that’s a pretty Foolish level in an environment today that is much more competitive and conducive to DIY investment than in the bad old days.
What’s the valuation like?
Legal & General’s shares are on a forward P/E now of 13.5, slightly less than the FTSE average. The sector does traditionally command slightly lower valuations than the market as a whole, due to its higher-than-average risk and its somewhat cyclical nature.
But with economies strengthening, I can see a few years of good growth ahead of the firm, and I don’t think today’s valuation is over-stretched — and it’s far closer to fair valuation than the insanely low multiples of six to eight during the recessionary years.
A definite winner then, without a doubt.
