The Motley Fool

9.1 Reasons That May Make Legal & General Group plc A Buy

Today I am explaining why I believe Legal & General Group (LSE: LGEN) (NASDAQOTH: LGGNY.US) is a stunning dividend pick for those seeking juicy investment income.

Buckle up for delicious dividend growth

Legal & General has convincingly got its progressive dividend policy back on track in recent years, after the fallout of the 2008/2009 global financial meltdown forced it to cut back shareholder rewards. And I reckon the firm is well positioned to deliver increasingly appetising returns looking ahead — indeed, the insurance giant is expected by City analysts to build this year’s full payout to a wallet-busting 9.1p.

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This year’s expected dividend, if realised, would represent colossal annual growth of 19% from 7.65p in 2012. And financial experts anticipate this to rise an additional 13.2% in 2014, to 10.3p.

I strongly believe that Legal & General is in great shape to deliver bubbly earnings growth, and consequently healthy dividend expansion, in coming years. Indeed, current estimates put earnings per share growth for 2013 at 15.4p, an 11% year on year rise, with a further 9% increase to 16.8p expected next year.

The insurance leviathan announced in August’s half-year report than scintillating sales growth across the business helped to push operating profit 10% higher during January-June, to £571m. The business said that it is “successfully evolving [its] strategy from a post-financial crisis focus on cash, to one based on cash plus growth plus selective acquisitions“, and purchases such as Cofunds back in May — Britain’s biggest digital savings platform with some £54bn assets under management — certainly bodes well for future growth.

On top of this, Legal & General’s excellent cash flows should also undergird investor confidence in future dividend levels — operating cash generation rose a healthy 14% in the first six months of 2013, to £537m.

Legal & General’s projected payouts for this year and next currently translate into bumper yields, with readouts of 4.3% and 4.8% for 2013 and 2014 respectively. This compares extremely favourably with the forward average of 3.1% for the entire FTSE 100,and although this year’s projected yield is bang in line with the average for the whole life insurance sector, I believe that the firm is in great shape accelerate away from its peers as a lucrative dividend stock.

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> Royston does not own shares in Legal & General Group.