Today I am looking at life insurance leviathan Legal & General Group‘s (LSE: LGEN) (NASDAQOTH: LGGNY.US) dividend outlook past 2014.
A stellar dividend selection
Legal & General’s long-term dividend outlook has improved markedly in recent times, the firm appearing to have finally put the travails associated with the 2008/2009 banking crisis behind it. City analysts expect Legal & General to punch solid earnings expansion over the medium term, with a 12% advance anticipated for last year — results for which are due on Wednesday, March 5 — with increases of 9% and 8% this year and next.
Legal & General saw the full-year dividend drop 32% and 5.4% in 2008 and 2009 respectively, having chosen to strengthen the balance sheet following the onset of the global credit crunch. And even though earnings have remained pressured since then, an improved capital position and rebounding confidence in the global economy have pushed subsequent payments robustly higher at a compound annual growth rate of 25.8%.
And forecasters expect further meaty growth in the payout in the near-term, with a 21.6% advance for 2013, to 9.3p per share, expected to be followed by a 15.1% increase this year to 10.7p and a further 10.3% rise in 2015 to 11.8p.
Predicted payments for this year and next currently translate to yields of 4.6% and 5.1% correspondingly, comfortably surpassing a forward average of 4.4% for the complete life insurance sector and respective reading of 3.1% for the broader FTSE 100.
Those wary of possible pressure on payout expansion will point to dividend coverage of just 1.6 times prospective earnings for 2014 and 2015, well below the widely-considered safety benchmark of 2 times.
However, I believe that Legal & General’s enviable cash-generation qualities should assuage investor fears over its ability to keep shareholder payouts moving comfortably higher. Indeed, the firm saw net cash surge 20% during January-September to £740m. With the next stage of cost efficiencies currently getting underway and new business levels continuing to surge — gross inflows jumped 65% in the nine-month period to £42.1bn — I expect cash to continue moving higher.
Although dividend growth is expected to slow in the medium term, in my opinion Legal & General’s is in great shape to continue printing meaty increases well into the future. With M&A activity anticipated to heat up, and sales levels surging not only in its core UK markets but across the globe, I reckon that the life insurer is an exceptional pick for savvy dividend hunters.
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> Royston does not own shares in Legal & General.