This star dividend share still looks a bargain

Legal & General’s stellar 2022 results, its sound fundamentals and its ongoing commitment to shareholders make this a must-buy dividend share for me.

| 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.

Front view photo of a woman using digital tablet in London

Image source: Getty Images

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.

Legal & General (LSE: LGEN) has long been a star dividend share in the FTSE 100. Based on its recently released results, this looks set to continue.

In its 2022 results, the financial services provider promised a dividend of 19.37p per share, up 5% from 2021’s 18.45p. The company added that it is on track to achieve its five-year plan to increase dividends from £3.3bn to £5.6-5.9bn by the end of 2024.

Strong balance sheet underpins generous dividends

From the start of Legal & General’s five-year plan in 2020 to the end of 2022, it has achieved £5.1bn of cash generation and £4.9bn of cumulative capital generation. It stated in its results that even zero growth in both metrics from now to 2024 would allow it to generate £8.0–9.0bn in cumulative cash and capital. Another sign of balance sheet strength is the company’s Solvency II ratio rising to 236% in 2022, from 187% in 2021.  

The fundamental factors underpinning these stellar numbers look very solid to me across all four of its business lines.  

Solid fundamentals with high growth prospects

The Legal & General Retail Investments (LGRI) retirement solutions business remains a market leader in the UK Pension Risk Transfer (PRT) space. Meanwhile, it’s a top 10 player in the US PRT market.

Its Legal & General Capital Investments asset origination business is increasingly attracting third-party capital investment directly and through collaboration with Legal & General Investment Management (LGIM). This is to meet the growing client demand for alternative assets.

LGIM itself remains a leading global asset manager. It is ranked 11th in the world, with £1.2trn of assets under management. LGIM is also a leading provider of UK and US defined benefit pension de-risking solutions. This means LGIM taking responsibility to pay all or part of companies’ final salary pensions. In return for which, it is paid a lump sum.

The US market has exceptional growth potential, with $3.0trn in defined benefit pension schemes. Only around 9% of these have already moved to insurance companies, such as Legal & General.

Finally, the company’s Retirement & Protection Solutions business remains a leading provider of UK retail retirement solutions and US term life insurance.

Synergies working to drive profits and growth 

Additionally positive are the long-term synergies at play in the company’s business model. These are likely to drive profits and fuel growth for decades to come, I think.

According to Legal & General data, a corporate client in LGIM typically becomes a PRT client after 14 years. LGRI will then typically have a relationship with that client for another 30 to 40 years.

Also, Retail Retirement and LGIM may have a 30–40-year relationship with a customer during the defined contribution pension scheme accumulation phase. This may extend for another 15-30 years during the decumulation phase.  

The company is not immune to market risk, of course. The mix of rising inflation and interest rates over 2022 led to a fall in LGIM’s assets under management from £1.309trn to £1.196trn .

For me, though, the company’s very high Solvency II ratio and extremely sound fundamentals offer considerable protection.

These, in addition to the company’s ongoing generous dividend payments, meant that I bought more Legal & General shares after the results were announced.

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.

Simon Watkins has a position in Legal & General. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 75% in 5 years, I reckon this FTSE 250 still has lots to give!

Our writer explains why this FTSE 250 stock could still continue to provide growth and returns despite already being on…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 high-quality FTSE 250 stocks to consider buying

The FTSE 250 is home to some of the best investment opportunities out there. This Fool highlights two stocks for…

Read more »

Investing Articles

The Marks and Spencer share price dips! Is this my chance to buy?

Marks and Spencer was one of the hottest stocks on the market last year. With its share price falling in…

Read more »

Growth Shares

How low could the boohoo share price go?

Jon Smith explains why the enterprise value and the low risk of bankruptcy should help to prevent the boohoo share…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Down 23% in a year! Can the Diageo share price regain £30 in 2024?

This Fool UK writer is checking the charts to see if the Diageo share price can recover from the recent…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

I wouldn’t touch this FTSE 100 stalwart with a bargepole

Despite looking like a bargain on paper, this Fool is avoiding FTSE 100 constituent Vodafone at all costs. Here he…

Read more »

Investing Articles

I’m waiting for the Rolls-Royce share price to pull back before I buy

The Rolls-Royce share price has been the Footsie's best performer in the last year. But this Fool has no intention…

Read more »

Front view photo of a woman using digital tablet in London
Dividend Shares

2 dividend stocks to take me from £0 to £9.5k in second income

Jon Smith talks through some ideas with second income potential, including one stock that has a dividend yield above 10%…

Read more »