ii view: big dividend payer L&G remains on track

First-half results to 30 June

• Operating profit down 1.8% to £941 million
• Capital cushion or solvency II coverage ratio of 230%, down from 236% in late December
• Interim dividend up 5% to 5.71p per share

Chief executive Nigel Wilson said:

“We remain on track to achieve our five-year ambitions and deliver attractive returns for our
shareholders. 

“LGRI and LGC performed strongly, LGIM results stabilised, and Retail’s performance – while impacted by competition in some areas – was bolstered by growing annuity sales and progress in US protection. I’d like to thank my colleagues for their contribution and ongoing commitment to inclusive capitalism, serving our shareholders, customers and wider society.”

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ii round-up:

Legal & General Group (LSE:LGEN) is a major UK financial services company selling life insurance, pensions, general insurance, and other investments. 

It operates across four divisions. L&G Retirement Institutional (LGRI) provides retirement products for its institutional clients and is the biggest generator of operating profit at around two-fifths. 

There's a Retail division offering savings, protection, and retirement products such as annuities to around 12 million retail policyholders and workplace members; an alternative asset or capital investment business, L&G Capital (LGC), investing in areas such as specialist commercial real estate, clean energy, and housing; and the traditional investment management (LGIM) business with assets under management (AUM) of £1.15 trillion.  

For a round-up of these results, announced on 15 August, please click here. 

ii view:

Founded in 1836 and headquartered in London, L&G is today pursuing a strategy to remain a leader in the global retirement solutions and insurance markets. Rivals include Aviva (LSE:AV.) and Phoenix Group Holdings (LSE:PHNX), owner of the SunLife brand. L&G lists its six growth drivers as ageing demographics, globalisation of asset markets, investing in the real economy, welfare reforms, technological innovation and addressing climate change. 

For investors, the still challenging economic backdrop and its impact on operations cannot be forgotten. Interest rate hikes have reduced customer demand for mortgage products, with higher rates potentially diverting some savers towards deposit accounts. Exposure to housing investments at its LGC alternative asset division also warrants consideration, as does broadly elevated costs for businesses generally and the pending end of year departure of Nigel Wilson, its chief executive for more than a decade. 

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More favourably, L&G’s exposure to ageing demographics and pension provision remains central. Its diversity of businesses helps counter challenges for any one of its divisions. Group financial strength or solvency II ratio still stands close to its recent record of 236%, while a focus on overseas diversification continues to be pursued.   

On balance, and despite the ongoing readjustment of asset markets to higher interest rates, a forecast dividend yield of more than 8% is likely to keep the stock attractive to income investors.

Positives: 

• Diversity of both product and geographical location
• Attractive dividend payment (not guaranteed)

Negatives:

• Direct investments such as property take time to sell
• Subject to changes in insurance regulation

The average rating of stock market analysts:

Strong hold