The FTSE 100’s Hottest Dividend Picks: Legal & General Group Plc

Royston Wild explains why Legal & General Group plc (LON: LGEN) is a wise selection for solid income flows.

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Today I am looking at why I consider Legal & General Group (LSE: LGEN) (NASDAQOTH: LGGNY.US) to be a premier dividend pick.

Terrific dividend record set to keep rolling

Like many within the life insurance sector, Legal & General is a magnet for those seeking white-hot dividend prospects. images (1)The business has raised the full-year payout at a compound annual growth rate of 25% since 2009, and City brokers expect dividends to continue steamrolling higher during the next couple of years.

Indeed, Legal & General is anticipated to raise last year’s 9.3p per share dividend to 10.9p in 2014, a chunky 17% increase. And a further gargantuan rise — this time by 13%, to 12.3p — is pencilled in for 2015.

This year’s projection creates a yield of 4.6%, smashing a forward average of 3.2% for the FTSE 100 but falling short of the wider life insurance sector’s corresponding reading of 4.7%. Still, next year’s expected increase drives the yield to a mouth-watering 5.2%.

Projections bolstered by earnings, cash potential

And I believe that Legal’s & General’s robust earnings profile should help to underpin confidence in the firm’s dividend potential, even if dividend cover stands around 1.5 times predicted earnings for this year and next — a figure of 2 times or above is generally considered the security watermark.

The insurance leviathan has recorded double-digit growth in each of the past two years, and the business is expected to punch further earnings expansion to the tune of 12% and 8% for 2014 and 2015 correspondingly.

Legal & General saw group assets under management (AUMs) surge 5% during January-March to an all-time peak of £462.6bn, and although changes under the Budget has impacted individual annuity sales — these slumped 40% during quarter one — the business is witnessing strong demand in other areas including protection and pension de-risking products.

As well, its expansion into foreign markets is also providing huge rewards, as Legal & General saw international AUMs surge 21% in January-March.

Meanwhile, Legal & General also has a formidable capital position to fall back on should earnings disappoint. Indeed, the firm’s sterling sales performance during the first quarter propelled net cash generation 21% higher to £301m, the highest-ever total.

In my opinion the company’s ability to generate plenty of readies, when combined with its perky revenues prospects, should solidify Legal & General’s reputation as a dependable deliverer of yearly dividend growth.


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.

Royston Wild has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.

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