L&G lifts dividend 22% and pledges more payouts for investors

Insurer lifts profits by 13% and signals lower dividend cover

The chief executive of Legal & General has signalled investors can expect fresh rises in dividends as the life insurance and savings group plans to increase the proportion of its earnings it distributes to shareholders.

Speaking after the FTSE 100 company delivered a 13 per cent year-on-year rise in first-half pre-tax profits, Nigel Wilson said L&G was set to lower its dividend cover – a move that would further enhance payouts to investors.

L&G lifted its interim dividend by 22 per cent to 2.4p per share, higher than expected. If the company were to follow this up with the same increase in the full-year payout, the dividend would be covered by earnings 1.7 times.

Gordon Aitken, analyst at RBC Capital Markets, said this was “significantly in excess” of the company’s peers Standard Life and Resolution, whose dividends are covered by earnings 1.4 and 1.1 times respectively.

Mr Wilson said: “We will reduce cover. There’s further headroom in the dividend.”

He added: “The balance sheet is so incredibly strong … [And] the chances of a regulatory shock have diminished.”

Mr Wilson added that L&G, which in recent months has bought pensions buyout company Lucida, online funds platform Cofunds and a stake in the housebuilder Cala Group, was on the look out for more bolt-on acquisitions.

This is a clear break from the strategy of his predecessor Tim Breedon, who was sceptical about dealmaking.

“The sellers recognise that we’re serious about making acquisitions so there’s more doors opening up to us,” Mr Wilson said.

The group was looking at broadening the geographic presence of its annuities business as well as LGIM, its asset management arm.

“A few years ago LGIM was tiny internationally and now it’s over £50bn,” he said. “Annuities is probably four or five years behind LGIM.”

L&G struck its first annuity deal outside the UK earlier this year with a €136m arrangement to de-risk the pension book of New Ireland Assurance.

“We’re looking at the US, Canada, the Netherlands and Ireland,” he said.

However, Mr Wilson said organic expansion took priority over potential acquisitions. “LGIM hasn’t done an international acquisition – it’s all been organic growth.”

L&G was also looking at expanding its presence further in online saving platforms and the build-to-let housing market.

L&G reported growth in all of its principal business areas. Net inflows at LGIM, its asset management division, were double those in the same period last year at $8bn, with total assets rising to £433bn from £406bn.

UK and US protection gross premiums rose 3 per cent and 10 per cent respectively, totalling £1.2bn. Annuity sales rose 142 per cent to £1.4bn.

Overall, pre-tax profits came in at £592m compared with £523m for the first six months of 2012.

L&G said the outlook was “strong”, particularly as volatile markets pushed savers to look for more secure retirement solutions.

The results equated to first-half earnings per share of 7.82p, up 13 per cent, with a 16.8 per cent return on equity.

Copyright The Financial Times Limited 2016. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

More on this topic

Suggestions below based on Legal & General Group