Income investors have been in luck of late as rebounding trading for banks, miners and oil producers have seen the FTSE 100’s average yield rise to a respectable 4.1% as the end of March. But for those seeking out even higher dividend yields, one option is Legal & General (LSE: LGEN) and its whopping 5.7% annual payout.
This high yield isn’t the result of a falling share price either as the group’s shares have risen nearly 10% in value over the past year. This is because investors have reacted positively to the plan to reinforce its position as a one-stop shop for ageing Britons in need of a wide variety of asset management and insurance options.
Over the long term, this has had substantial benefits as the UK’s population ages. As an added upside, it’s already paying dividends for the business and its shareholders in the short run. This was clear in the company’s 2017 results that saw operating profits rise 32% to £2,055m while its return on equity leapt from 18.8% to 25.6% year-on-year.
With earnings per share doubling, management was able to increase full-year dividends from 14.35p to 15.35p while still investing heavily in buying up out-of-favour assets such as bulk annuities and building up its large and growing US business. This continues a long run of success as 2017 was the sixth year in a row the company recorded positive growth in earnings, return on equity, and dividends.
And considering the long term upside from wealthy baby boomers heading into their retirement years, I see every reason for this impressive performance to continue. With the company’s shares trading at just 10 times trailing earnings, while offering a great dividend that’s safely covered by growing earnings, I reckon Legal & General is a great stock to own for the long term.
Finally turning the corner
Another growth dividend FTSE 100 firm that’s caught my eye is pharmaceutical giant AstraZeneca (LSE: AZN). While the company’s dividend yield is slightly below the FTSE 100’s average at 4%, this is still nothing to sneeze at.
The company is drawing my interest now because it’s finally reporting a return to positive sales growth after years of declines as blockbuster drugs lose patent protection in the US. For now, growth is still minimal with product sales in Q4 growing by 3% at constant exchange rates.
However, this positive momentum shouldn’t be underestimated. Management is expecting full year 2018 product sales growth in the single-digits as its new respiratory treatments take off and significant investments in building up its oncology portfolio begin to pay off.
Looking out over the medium term, the company’s large pipeline of late stage treatments is also exciting. A slew of them have just won, or are in the final stages of winning, regulatory approval in the US and EU. There’s also geographic growth potential as the group pushes into the massive and fast-growing Chinese pharma market with sales there rising 15% year-on-year in 2017, with Q4 sales alone up 30%.
Now, this growth potential means investors are currently valuing AstraZeneca at a lofty 20 times forward earnings, but for investors who want a hearty dividend and exposure to the pharma sector, there are many worse options out there.
