Profit hike leads to bounce for Legal & General’s dividend

LEGAL & General yesterday restored its dividend to a level last seen before the financial crisis, as a rise in operating profits strengthened its balance sheet.

Highlighting its positive outlook for this year, the company increased its annual pay-out to shareholders by 35 per cent to 6.4p a share, much higher than City forecasts.

Operating profits were up 5 per cent to almost £1.1 billion as sales lifted 7 per cent to £1.9bn.

Chief executive Tim Breedon said all four of L&G’s divisions of protection products, savings, investment management and international achieved increased sales growth, cash generation and profits in the year.

The dividend was more than twice covered by the cash generated in the year, he said, adding that L&G had significant scale with seven million customers and £370bn of assets under management.

“We remain convinced that attractive and increasing returns are achievable in our core UK markets,” he said.

The firm’s general insurance business returned to the black with profits of £42 million, as benign weather conditions meant fewer claims.

Savings operating profits of £128m were up 11 per cent while the investment management division delivered 14 per cent growth in profits to £234m.

The group’s balance sheet retains a solvency cushion of £3.8bn, slightly higher than a year earlier.

Despite the dividend boost, Investec Securities analyst Kevin Ryan cut his rating to “sell” and said he was concerned that just 13 per cent of L&G’s profit is generated outside the UK and that over 53 per cent of what the company declares as cash generation comes from annuities.

He added: “We view this as a very confident statement by the company, but continue to see significant strategic challenges ahead.”

Ryan warned that if new EU solvency rules were to insist on significantly higher levels of capital for writing annuities, this could provide the company with a “serious challenge”.