Thanks to its monster yields, Legal & General Group (LSE: LGEN) is a great income pick, regardless of whether you’re some way off from retirement or have already kicked off the work boots for good.
Whether or not the FTSE 100 insurance colossus faces any temporary earnings turbulence, investors can take heart from its brilliant balance sheet and thus still expect dividends to keep on growing. This is certainly the case this year with the number crunchers anticipating a 16.4p per share dividend for 2018 despite predictions of a slight earnings reversal. Legal & General’s cash-generative qualities are going from strength to strength, and consequently its Solvency II ratio rose to 193% for January-June from 186% a year earlier.
This year’s projected dividend, if realised, would mark an improvement from last year’s 15.35p reward and yields a staggering 6.4%.
And in the years ahead I am confident that the growing investment needs of Britain’s ageing population should underpin solid earnings growth at Legal & General, allowing it to keep its crown as a top-tier income stock.
A safer selection
The yields over at Diageo (LSE: DGE) are a lot less impressive. For the year to June 2019 City analysts are expecting a 69.5p per share dividend, resulting in a forward reading of 2.5%.
Diageo doesn’t only lag Legal & General in the yield stakes either. Indeed, there is no shortage of shares across the FTSE 100 that beat the drinks giant in this respect — Anglo American’s forward reading of 4.7% Centrica’s 5.8% and BT Group’s 6.9% are just a few of those that may be more appealing at first glance.
However, those relying on many of the FTSE 100’s big payers to make them a handsome little nest egg for retirement may well find themselves disappointed thanks to their shaky profit outlooks. In fact, the three I have mentioned above are in danger of having to slash the dividend in the near future, or in the case of Centrica, yet again!
Solid as a rock
This is not something that investors in Diageo have to worry about. The business has been raising the annual dividend for donkey’s years and is in great shape to meet current projections, the anticipated payout for fiscal 2019 covered 1.8 times by predicted earnings.
What’s more, the Johnnie Walker maker is actively seeking to keep coverage locked between this level and 2.2 times in the years ahead, giving shareholders terrific peace of mind.
And Diageo should have what it takes to keep profits and thus dividends moving skywards. As I noted last time out, the company’s labels are beloved all over the globe, and the huge sums it is investing in innovating and marketing its brands to help them retain their allure guarantees their ‘cash cow’ status.
The company might be expensive thanks to its prospective P/E ratio of 22 times. However, the might of Diageo’s product stable, and thus its ability to generate growing shareholder returns for many years to come makes it worthy of such a premium.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. 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.