Prudential plc’s Dividend Prospects For 2014 And Beyond

Many top FTSE 100 companies are currently offering dividends well above the interest you can get from cash or bonds — and with the potential for real future income growth

In this series of articles, I’m assessing how some of your favourite blue chips measure up as potential income-generators, by looking at dividends past, dividends present and dividends yet to come.

Today, it’s the turn of top FTSE 100 insurer Prudential (LSE: PRU) (NYSE: PUK.US).

Dividends past

The table below shows Prudential’s five-year earnings and dividend record.

  2008 2009 2010 2011 2012
Statutory earnings per share (EPS) -16.0p 27.0p 56.7p 58.8p 86.5p
Dividend per share 18.90p 19.85p 23.85p 25.19p 29.19p
Dividend growth 5.0% 5.0% 20.2% 5.6% 15.9%

As you’d expect, Prudential’s earnings took a hit during the financial crisis of 2008/9. Nevertheless, the company was able to continue increasing its dividend. As earnings recovered, the board rebased the dividend higher in 2010 and again in 2012. Overall, the average annual increase works out at an impressive 10.3% — far ahead of inflation.

The total of 116.98p a share in dividends paid over the period was covered a fairly healthy 1.8 times by total EPS of 213p. Post-financial crisis cover increased to two in 2010 and has increased each year since.

A superb dividend performance through extraordinary times, putting most other financial-sector companies to shame.

Dividends present

Prudential has so far paid an interim dividend of 9.37p for the 2013 year, in line with the board’s policy of paying a third of the prior year’s full-year dividend. The analyst consensus is for a final dividend of 22.35p when the company announces its annual results during March — giving a 2013 full-year payout of 31.72p (up 8.7% on 2012).

At a share price of 1,360p, Prudential’s expected dividend represents a yield of 2.3%.

Dividends yet to come

Analysts see high single-digit dividend growth continuing, with an 8.8% rise to 34.5p for 2014 and a 7.2% increase to 37p penciled in for 2015.

The analysts are forecasting EPS to grow even faster than the dividend, in which case there could be the possibility of another step-change upward rebasing of the dividend, such as shareholders enjoyed in 2010 and 2012.

The market has justifiably rewarded this strong performer with a high rating — and relatively low yield for new investors today. Existing shareholders have enjoyed strong income growth, and can be optimistic about further dividend increases ahead of inflation for the foreseeable future.

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G A Chester does not own any shares mentioned in this article.