This Week’s Top Blue-Chip Income Buy: Legal & General Group Plc

G A Chester rates Legal & General Group Plc (LON:LGEN) a great buy for dividend investors today.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

Pound Coins

I’m always on the lookout for big FTSE 100 companies when they’re being offered in the market at an attractive valuation for dividend investors. A little higher yield at the time you buy can make a big difference to the growth of your income stream over the long term.

Right now, I reckon insurer and asset manager Legal & General (LSE: LGEN) (NASDAQOTH: LGGNY.US) is looking a great buy for income.

L&G has recovered strongly since the financial crisis of 2008/9. The dividend took a knock, but overtook its pre-crisis level by 2011 — and has gone from strength to strength since.

The shares, which are trading at 235p at the time of writing, are just 3% below their recent all-time high. Nevertheless, a good dividend and a new dividend policy announced with the group’s final results this week, are a bit of a game‑changer for income investors.

A great opportunity right now

L&G reported net cash generation of over £1bn for 2013, more than three times that generated in 2008. The board is recommending a final dividend of 6.9p, giving a full-year payout of 9.3p, 22% higher than 2012. Anyone investing before the ex-dividend date of 23 April will be entitled to receive the final dividend.

At a share price of 235p, the trailing 12-month dividend yield is 4%, compared with 3.5% for the FTSE 100 as a whole. Furthermore, the yield is not only ahead of the market to begin with, but can also be expected to grow much faster than the market over the next couple of years, due to the policy L&G has just announced.

The 9.3p payout for 2013 was covered 1.82 times by net cash, but the board intends to reduce cover to nearer 1.5 times over the next two years. This would see the yield rise to 4.8% even if there were to be no growth in cash generation.

However, there’s every likelihood L&G will grow cash. The business has great momentum, and the company says, “we continue to see profitable growth opportunities, both organic and via selective acquisitions”.

L&G’s dividend policy is based on assumptions about new solvency regulations, about which full clarity won’t emerge for at least 18 months. But the company seems pretty confident in its capital surplus forecasts under the new regime.

The final dividend and the forecast next interim both offer anyone investing today a yield of over 4% for the 12 months ahead, with the turbo-charge of the new payout policy boosting the company’s already-strong dividend growth prospects over the next two years. Hence, I rate L&G a great buy for income investors right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester does not own any shares mentioned in this article.

More on Investing Articles

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

UK dividend shares are outperforming US tech stocks!

UK dividend shares aren’t just for passive income investors. Over the last 12 months, they’ve been outperforming their US tech…

Read more »

DIVIDEND YIELD text written on a notebook with chart
US Stock

Here’s how much passive income an investor could make with £2k in Meta stock

Jon Smith looks at Meta stock from a different angle to normal, considering it as an option for an investor's…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

1 of my top UK shares is up 15% in a day! Is it still a buy for me?

Celebrus shares are soaring after strong full-year results. At a P/E ratio below 13, is it one of the best…

Read more »

Close-up of children holding a planet at the beach
Investing Articles

£10,000 invested in Jet2 shares 2 years ago is now worth…

Jet2 shares have surged in recent months and finally appear to be pushing towards fair value. Dr James Fox shares…

Read more »

piggy bank, searching with binoculars
Investing Articles

This FTSE 100 blue-chip could rise 26% in 12 months, according to brokers

While this FTSE 100 dividend stock has put investors through the wringer in recent years, some analysts see brighter skies…

Read more »

Businessman hand stacking money coins with virtual percentage icons
Investing Articles

A 3-step passive income strategy to target major wealth

Want to invest in the stock market to build up a passive income stream? There's no fiendlishly complex multi-step mystique…

Read more »

Black woman using smartphone at home, watching stock charts.
Investing Articles

Should I buy Fundsmith Equity for my Stocks and Shares ISA?

Managed by Terry Smith -- often dubbed the UK’s Warren Buffett -- this £20bn fund remains a staple in many…

Read more »

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
Investing Articles

Down 5% despite good Q1 results, is now the time for investors to consider Sainsbury’s shares?

Supermarket giant Sainsbury’s released solid Q1 results on 1 July, but is down 5% from its one-year traded high, so…

Read more »