Why Legal & General Group Plc Should Be A Winner This Year

Legal & General Group Plc (LON: LGEN) is set for earnings growth in 2014.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Pound CoinsLegal & General Group (LSE: LGEN) (NASDAQOTH: LGGNY.US) is among the insurance companies that managed to keep its dividend going right through the recession, while a couple of its rivals were forced to slash theirs. In fact, not only was the annual payout maintained, but it was hiked handsomely each year.

But what does 2014 have in store?

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Let’s start with a look at the past five years, together with the latest consensus:

Dec EPS Change P/E Dividend Change Yield Cover
2008 -17.88p n/a n/a 4.06p —  5.3%  -4.4x
2009 14.82p n/a 5.4 3.84p -5.4% 4.8% 3.9x
2010 14.07p -5% 6.9 4.75p +24% 4.9% 3.0x
2011 12.42p -12% 8.3 6.40p +35% 6.2% 1.9x
2012 13.90p +12% 10.5 7.65p +20% 5.3% 1.8x
2013* 15.63p +12% 13.8 9.27p +21% 4.3% 1.7x
2014* 16.94p +8% 12.7 10.65p +15% 4.9% 1.6x
2015* 18.32p +8% 11.8 11.78p +11% 5.5% 1.6x

* forecast

What a bargain that was!

Firstly, did you buy any at the end of 2009 when the shares were priced at around 80p and on a stupidly low price-to-earnings (P/E) ratio of just 5.4? You didn’t? Me neither. But those who did have since seen their shares soar 170% in value to 216p today, and they’ve had those lovely dividends rolling in too.

Now, let me offer a note of caution — those dividends are looking a bit overstretched to me. Aviva was forced to slash its dividend in 2012 and bring it down to more sustainable levels, and its 2013 dividend looks set to be covered around three times by earnings.

At just 1.7 times, I’d say Legal & General’s expected cover is looking a bit fragile. At the very least, I’d prefer to see cover being maintained and the dividend rising no faster than earnings — at least until the economic recovery is looking a bit stronger.

Board optimism

But Legal & General’s board appear to think that the company is heading for lucrative times and that continuing to boost the dividend ahead of earnings is justified. Are they right?

Well, at Q3 time reported in November, we heard that year-to-date net cash generation was up 20% to £740m, with year-to-date gross inflows up 65% to £42.1bn. Total assets under management came to £443bn.

And at the first-half stage earlier in the year, Legal & General had already bumped up its interim dividend by 22% to 2.4p, saying the decision was backed by “the Board’s confidence in the strength of Legal & General’s financial performance“. And judging by forecasts for 2014 and beyond, that bullishness is probably here to stay.

Looking good

Barring unforeseen disasters (and providing my niggling concerns over the relatively weak dividend cover prove unfounded, at least in the short term), we should be looking at a healthy earnings rise in 2014 together with an even nicer dividend rise. And with a year-end P/E of under 13 and dropping to less than 12 by the end of 2015, I can see the share price gaining a bit more this year too.

Verdict: Everything up in 2014!

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How I’d apply the Warren Buffett method to buying shares

Learning from billionaire investor Warren Buffett, our writer explains his own approach to investing in shares for his portfolio.

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

This dividend share yields under 1% — but I’d still buy it

This dividend share has a low yield. So why would our writer consider adding it to his income portfolio?

Read more »

Young lady working from home office during coronavirus pandemic.
Investing Articles

Looking for a good share to buy? Here’s how I do it

Here are two approaches our writer uses when hunting for a good share to buy for his portfolio to aim…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

One cheap FTSE 100 share I’d buy for a new bull market

This FTSE 100 share is unloved and starting to look seriously cheap, says Roland Head.

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

How I’d invest £500 in UK shares in 2022

Investing a small amount of capital in UK shares can result in high commission costs. Zaven Boyrazian explains how to…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

2 battered FTSE dividend stocks to buy in July!

I'm still searching the FTSE 100 for the best bargains to buy. I think these two big dividend shares are…

Read more »

Woman pulling baffled face
Investing Articles

Can I trust Lloyds’ 6.1% dividend yield?

The Lloyds' share price has sunk in 2022, causing the bank's dividend yield to leap. But can I really trust…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

3 top stocks to buy before the market rebounds

Edward Sheldon highlights three beaten-up stocks he'd buy before global stock markets stage a recovery from their 2022 declines.

Read more »