Just over one year ago, I selected insurance leviathan Legal & General (LSE: LGEN) as one of my top FTSE 100 dividend buys for 2017. Twelve months later — and taking into account the company’s most recent statement — my positive view on the stock hasn’t changed.
Back in December, the £16bn cap disclosed it was heading for a “record year for earnings and profits“, having seen “formidable momentum” in all its businesses in 2017 and “particularly strong growth in recent weeks“.
Thanks to good performances in the UK and US, total sales in its Retirement division came in at £6.2bn at the time the update was released. Individual annuity premiums in the UK rose 93%, significantly outperforming the market as a whole.
Elsewhere, the company’s investment management arm attracted inflows of £38.1bn by the end of October with the firm stating that it “continues to be a market leader in defined benefit and defined contribution solutions in the UK” and a “global leader” in liability-driven investments. The company’s General Insurance business is also doing well with gross written premiums up 13% to 305m by the end of October.
Although a 15% rise in the price of Legal & General’s stock over the last year would suggest that payouts might not be quite as attractive as they once were, this simply isn’t the case. Based on today’s valuation, the shares are forecast to yield a hugely tempting 5.9% in 2018, covered a respectable 1.5 times by profits — a level of protection that’s a lot higher than that offered by some of its high-paying FTSE 100 peers.
As an investment, Legal & General is unlikely to get your pulse racing. However, with a rock-solid balance sheet, compelling US growth strategy, still-reasonable valuation (11 times predicted earnings) and a long history of hiking its bi-annual payouts, I’m struggling to see many better picks in the market’s top tier right now.
Another big dividend payer I’d consider adding to my portfolio at the current time would be Isle of Man-based kettle safety control manufacturer and supplier Strix (LSE: SFE).
Today’s pre-close trading update from the AIM-listed business contained few surprises — exactly what you would expect given the company’s rather defensive line of work. It would appear that the £262m cap performed decently in 2017 and is likely to report full-year numbers in line with market expectations this coming March.
In addition to maintaining its status as a leader in what it does (39% share of global market), management believe that the recent launch of its “best in class” U9 series of controls will serve as a catalyst for further international growth.
As a result of positive cash generation over the last year, Strix also expects to announce a “significantly improved net debt position” in a couple of months’ time — a development which will clearly support the company’s dividend policy going forward. Right now, Strix’s shares come with a chunky forecast dividend of 5.1% based on today’s share price and are covered 1.7 times. The former is almost four times what you’d receive from the best instant access savings account at the current time.
Of course, no one knows for sure what 2018 holds for the markets, let alone one company. Nevertheless, with its geographically diversified earnings, decent free cash flow and high operating margins, I continue to be bullish on Strix at a valuation of just 11 times forecast earnings.
Of course, buying stock in any company based on nothing more than the size of its dividend is never a great idea. Should earnings be hit, the bi-annual payouts are often the first things to be sacrificed by management.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.