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. 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.
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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.