Based on amounts paid over the past 12 months, Legal & General (LSE:LGEN), Phoenix Group Holdings and M&G (LSE:MNG) are the best dividend payers on the FTSE 100.
All of them operate in the financial services industry, offering savings and investment products to millions of customers.
Top of the pile
With a market cap of £14.9bn, Legal & General’s the most valuable.
At the moment (11 June), it’s also offering the highest yield (8.29%).
Pledges have been made to increase the dividend by 2% a year for the foreseeable future. Of course, there are no guarantees. But the group has an impressive track record of increasing its payout. It was last cut during the financial crisis of 2008-09. Now — in cash terms — it’s over five times higher.
Much of the anticipated earnings growth is expected from the group’s Institutional Retirement division. It has a pipeline of £44bn of pension funds that it’s looking to acquire and manage. Higher interest rates have also boosted the sale of annuities.
A complicated picture
Through its Standard Life and SunLife brands, Phoenix Group claims to be the UK’s largest long-term savings and retirement business with over 12m customers. Its stock’s yielding 8.26%.
But a look at the group’s most recent accounts highlights how difficult it is to interpret the financial performance of companies operating in the sector. In 2024, it reported an adjusted operating profit of £825m but a statutory loss of £1.08bn. The difference is explained by complicated accounting (non-cash) adjustments relating to hedges and other financial instruments.
It’s a similar story for M&G. In 2024, it reported a loss after tax of £347m. But it had an adjusted operating profit of £837m. A large element of this variance is explained by auditors requiring the profit from insurance products to be recognised over the lifetime of a contract rather than when an agreement is signed.
Accounting adjustments like these make it difficult to value these companies using conventional measures like the price-to-earnings ratio.
But since de-merging from Prudential in October 2019, M&G’s increased its dividend every year. The yield’s now 7.9%. And if the group can achieve its target of growing operating earnings by 5% a year, I see no reason why this shouldn’t continue.
In 2024, its asset management division increased its operating profit by an impressive 19%.
Some risks
However, all three companies face the same issues that could impact their earnings and dividends.
The industry is a competitive one with a number of challenger brands entering the market.
Also, to meet their obligations to savers and pensioners, they have huge investment portfolios on their balance sheets, including significant equity holdings in other listed companies. These are subject to the same unpredictable market forces that private investors face. If these don’t deliver the anticipated returns, the current level of healthy returns to shareholders could be in jeopardy.
My opinion
Of the three, the stock I know best is Legal & General. I have it in my Stocks and Shares ISA and because of its generous yield — underpinned by its strong balance sheet and impressive growth prospects — I think other income investors could consider doing the same.
As for the other two, I’d have to do more research before deciding whether to include them in my portfolio.
