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legal and general (LSE: LGEN) has long been a star dividend stock in the FTSE 100. Based on their recently published results, it looks like this will continue.
In its 2022 results, the financial services provider promised a dividend of 19.37 pence per share, up 5% from 18.45 pence in 2021. The company added that it is on track to achieve its five-year plan to increase dividends from £3.3bn to £5.6-5.9bn by the end of 2024.
A strong balance sheet supports generous dividends
From the start of Legal & General’s five-year plan in 2020 to the end of 2022, it has achieved £5.1bn of cash generation and £4.9bn of cumulative capital generation. He stated in his results that even zero growth in both metrics from now to 2024 would allow him to generate £8-9bn in cumulative cash and equity. Another sign of balance sheet strength is the increase in the company’s Solvency II ratio to 236% in 2022, from 187% in 2021.
The fundamental factors behind these stellar numbers seem very strong to me across your four lines of business.
Solid fundamentals with high growth prospects
Legal & General Retail Investments (LGRI)’s retirement solutions business continues to be the market leader in the UK Pension Risk Transfer (PRT) space. Meanwhile, it is one of the top 10 players in the US PRT market.
Its Legal & General Capital Investments asset origination business is increasingly attracting equity investment from third parties directly and through collaboration with Legal & General Investment Management (LGIM). This is to meet the increasing demand for alternative assets from clients.
LGIM continues to be a leading global asset manager. it is in position 11he in the world, with £1.2 trillion of assets under management. LGIM is also a leading provider of defined benefit pension de-risking solutions in the UK and US. This means that LGIM takes responsibility for paying all or part of companies’ final salary pensions. In exchange for which, a lump sum is paid.
The US market has exceptional growth potential, with $3.0 trillion in defined benefit pension plans. Only about 9% of these have already been moved to insurance companies, such as Legal & General.
Finally, the company’s retirement and protection solutions business continues to be a leading provider of retail retirement solutions in the UK and term life insurance in the US.
Synergies working to drive profits and growth
The long-term synergies at play in the company’s business model are also positive. I think they are likely to drive earnings and fuel growth for decades to come.
According to Legal & General data, a corporate client in LGIM typically becomes a PRT client after 14 years. So LGRI will typically have a relationship with that client for another 30 to 40 years.
In addition, Retail Retirement and LGIM may have a 30 to 40 year relationship with a customer during the accrual phase of the defined contribution pension plan. This can be extended for another 15 to 30 years during the payout phase.
The company is not immune to market risk, of course. The combination of rising inflation and interest rates during 2022 caused LGIM’s assets under management to drop from £1.309 billion to £1.196 billion.
However, for me, the company’s very high Solvency II ratio and extremely strong fundamentals offer considerable protection.
These, in addition to generous dividend payments from the company, meant that I bought more Legal & General shares after the results were announced.
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