Equity income specialist Neil Woodford has taken hits to some of his biggest holdings recently. However, FTSE 100 insurer Legal & General (LSE: LGEN) — ranked number three in his flagship fund and number two in his Income Focus fund — is a high-yield stock I’d be happy to buy today.
In addition to this familiar blue-chip name, I also see value in a high-yielder that most investors probably haven’t considered. It released its annual results today and I’ll come to it shortly.
Progressive and resilient
Legal & General’s dividend has increased from 7.65p in 2012 to 14.35p last year, driven by annual double-digit growth in earnings per share (EPS). That growth is set to continue this year and the dividend is forecast to rise to 15.25p, almost double the 2012 payout. At a share price of 260p, the forward yield is 5.9% and the dividend is covered a reasonable 1.6 times by forecast earnings.
The company has a strong balance sheet and market-leading businesses in areas underpinned by long-term macro and demographic growth drivers. It noted in its first-half results last month that while it’s not immune to market volatility, its successful performance through a snap UK general election and the start of Brexit negotiations “continues to demonstrate the resilience of our operating model.”
More of the same
The company also said: “Our financial ambition is to achieve a similar performance in 2016-2020 as that achieved in 2011-2015; where EPS grew by 10% per annum and net release from operations by 10% per annum.”
This ambition bodes well for healthy dividend increases over the next few years, because the board’s progressive dividend policy is aligned to “expected medium-term underlying business growth, including net release from operations and operating earnings.” The consensus among City analysts is for the dividend to increase to 16.15p next year, giving a yield of 6.2% for buyers at today’s price, and to 17p in 2019, giving a yield of over 6.5%.
A 10.3% yield
Hansard Global (LSE: HSD) offers tax-efficient investment products within a life assurance policy wrapper, designed to appeal to affluent, international investors. Supported by a multi-language internet platform, a network of independent financial advisors and some financial institutions, the company has access to clients in more than 170 countries.
In its annual results today, it reported a 14% rise in assets under administration to just over £1bn, a 24% increase in new business sales to £148m and a 43% uplift in its operating cash surplus to £22.7m. A dividend for the year of 8.9p means this FTSE SmallCap firm — which is valued at £119m at a share price of 86p — has a running yield of 10.3%. However, this year marks the end of a string of bumper payouts of 8p+, which were partly supported from cash reserves.
Still a high-yielder
Hansard today reiterated its intention to reduce the 2018 dividend by 50%. It said this will better match actual cash flows and also allow the company to “take advantage of strategic and new business opportunities.” A 4.45p dividend next year still gives a high yield of over 5% and the payout should grow as those strategic and new business opportunities come through.
Finally, I’m not too concerned by Hansard’s £14.3m of contingent liabilities relating to certain client claims against a legacy business. The company believes it has a strong defence and initial court judgements are tending to support it.