Many top FTSE 100 companies are currently offering dividends well above the interest you can get from cash or bonds — and with the potential for real future income growth
In this series of articles, I’m assessing how the companies measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.
Today, it’s the turn of insurance and asset management group Legal & General (LSE: LGEN) (NASDAQOTH: LGGNY.US).
Dividends past
The table below shows Legal & General (L&G)’s five-year earnings and dividend record.
| Â | 2008 | 2009 | 2010 | 2011 | 2012 |
|---|---|---|---|---|---|
| Statutory earnings per share (EPS) | -17.88p | 14.72p | 14.07p | 12.42p | 13.90p |
| Dividend per share | 4.06p | 3.84p | 4.75p | 6.40p | 7.65p |
| Dividend growth | -32% | -5.4% | +23.7% | +34.7% | +19.5% |
Like most insurers, L&G suffered during the financial whirlwind of 2008/9. The dividend was reduced, but the company, unlike some of its peers, didn’t ask shareholders to stump up cash with a rights issue. Furthermore, L&G’s dividend bounced back strongly after the crisis, and come 2011 surpassed its previous all-time high of 5.97p (paid in 2007).
L&G distributed a total of 26.7p a share in dividends over the five years in the table, covered 1.4 times by statutory EPS of 37.23p. For the latest year (2012) cover was a healthier 1.8 times.
The dividend performance through the financial crisis was neither the best nor worst in the sector. The income growth since — an average of 26% a year — has been one of the strongest.
Dividends present
L&G has so far paid an interim dividend of 2.4p for the current year. The analyst consensus is for a final dividend of 6.85p when the company announces its annual results on 5 March — giving a 2013 full-year payout of 9.25p (20.9% up on 2012).
Analysts see EPS rising by around 13%, to 15.7p, which means dividend cover would come down a click to 1.7 times.
At a share price of 230p, L&G’s current-year dividend represents a yield of 4%.
Dividends yet to come
Analysts are forecasting L&G’s dividend to continue rising strongly, with a 15.7% increase to 10.7p for 2014, and a further double-digits uplift of 11.2% penciled in for 2015. The analysts have EPS progressing at slightly less of a gallop — high single digits — meaning dividend cover would come down to 1.6, then 1.5 times.
Shareholders can be hopeful of strong dividend growth in the near term, but I’d prefer to see stronger cover than 1.5; top Footsie insurer Prudential has cover of nearer 2.5, providing more resilience for the dividend in the event of any negative earnings surprises.