Legal & General Group Plc’s Dividend Set To Grow By 14%

There’s earnings growth of 9% forecast at Legal & General Group Plc too.

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We’ve certainly been through a torrid few years for the insurance business, with a couple of companies forced to slash their dividends as they became too overstretched.

Stockpicker kidBut despite suffering falling earnings in the early years of the financial crisis, Legal & General (LSE: LGEN) (NASDAQOTH:LGGNY) kept its dividends growing — and we have more of the same forecast for the next two years.

Quick recovery

Legal & General had recovered from its minor slump by 2012, a year which saw an 11% rise in earnings per share (EPS) accompanied by a 20% hike in its annual dividend. And it went on to better things in 2013, with a further EPS gain of 10% and another 22% added onto the dividend.

The share price has responded well too, having soared by almost 80% over the past three years to 207p, while the FTSE 100 has managed only around 10%. But even after that, the shares are still on a forward P/E based on 2014 forecasts of only a little over 12.

More to come

So what of those forecasts? Well, there’s currently a consensus for a 9% rise in EPS for the year to December 2014, with a further 8% penciled in for 2015. Then we have that 14% dividend hike predicted this year, to 10.6p per share, with another 13% suggested for next year.

stock exchangeWhile the share price has risen in line with these boosts, Legal & General still looks set to provide a dividend yield of 5% for this year, climbing to 5.7% next. But is the dividend safe? The 2013 payment was covered 1.63 times by earnings, and we’re looking at a likely cover of 1.56 times and 1.49 times respectively for the following two years.

I’m a little concerned to see cover dropping below 1.5 times, but if it can be kept to that level over the longer term (which will require a slowing down of those annual dividend rises), then I doubt there’ll really be anything to worry about.

Sentiment split

Individual forecasters are pretty much split on Legal & General, with seven out of 18 urging is to buy the shares and four wanting us to sell — the largest contingent, of seven, is sticking with a Hold rating.

But I’m firmly in the Buy camp — those well-covered dividends look tasty to me.

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.

Alan does not own any shares in Legal & General.

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