Legal & General's share price (LON: LGEN) is up early today almost 1%, bringing 5 day gains to 5.4%, as the next dividend has been confirmed at 6p per share. This will be paid on 27th September to shareholders of record on 23rd August. That means LGEN shares go ex-dividend on 22nd August, giving those interested a little over 1 week to find a suitable buy point. We take a look at the latest surrounding L&G to see what markets are seeing in the stock.
Investors seeking a robust second income stream have been paying attention to this FTSE 100 dividend stock, due to its substantial yields and strong financial performance. A forward-looking dividend yield of 9.4% has been supported by the company's first half-year core operating profit edging higher, coming in at £849m, which has backed up a 5% increase in the interim dividend to 6p per share.
Additionally, Legal & General reported an increased operating return on equity of 35.4% in the first half of the year. Despite a minor decrease in assets under management, the company's asset management revenues rose by 6%, signalling strong operational performance.
For shareholders utilizing these dividends as a source of income, the yield of 9.4% significantly outperforms more traditional savings, but does the company have any real growth prospects to provide broader shareholder value and is the yield sustainable?
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Back in June, the firm announced a £200million buyback as part of a new strategy targeting 5% growth in dividend per share for the full year 2024. That is followed by a target of 2% annual dividend per share growth to 2027, along with further “similar” buybacks.
While a high yield often suggests a degree of risk or possible dividend cuts in the future, Legal & General’s performance tells a different story. The company has a strong track record of maintaining and increasing dividends, even amidst tough economic climates. As long as free cash flows continue to cover the LGEN dividend, the yield should remain sustainable.
Considering the current financial context, the search for yield is becoming more competitive, and this positions companies like Legal & General in a favourable light. Their commitment to shareholder return, paired with a diversified business model that spans pensions, investment management, and insurance, provides a degree of security that's attractive in today’s volatile market.
Moreover, Legal & General’s strategic investments in sectors like renewable energy and affordable housing demonstrate an understanding of long-term trends that could result in sustainable growth. These ventures may bolster the company's financial position and support its generous dividend policy over time.
Zooming out on the share price over a longer timeframe, the 12 month performance of -2.2% will do little for a growth oriented portfolio. Whilst the yield can be used to reinvest and compound value over time, markets have been performing strongly over the same time-frame, with the FTSE 100 index gaining 9.7% and the FTSE 250 10.5%.
With shares currently trading around 230p, the street price target consensus from analysts on LGE of 261p is a nice potential positive upside. The high estimate of 335p, against the low of 210p indicate as usual a large swing in the range of opinions.
Investors would do well to examine the company's fundamentals, alongside their own investment goals, risk appetite, and portfolio balance.
