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Legal & General (LSE: LGEN) has long been a star dividend share in the FTSE 100. Based on its recently released results, this looks set to continue.
In its 2022 results, the financial services provider promised a dividend of 19.37p per share, up 5% from 2021’s 18.45p. 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.
Strong balance sheet underpins 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. It stated in its results that even zero growth in both metrics from now to 2024 would allow it to generate £8.0–9.0bn in cumulative cash and capital. Another sign of balance sheet strength is the company’s Solvency II ratio rising to 236% in 2022, from 187% in 2021.
The fundamental factors underpinning these stellar numbers look very solid to me across all four of its business lines.
Solid fundamentals with high growth prospects
The Legal & General Retail Investments (LGRI) retirement solutions business remains a market leader in the UK Pension Risk Transfer (PRT) space. Meanwhile, it’s a top 10 player in the US PRT market.
Its Legal & General Capital Investments asset origination business is increasingly attracting third-party capital investment directly and through collaboration with Legal & General Investment Management (LGIM). This is to meet the growing client demand for alternative assets.
LGIM itself remains a leading global asset manager. It is ranked 11th in the world, with £1.2trn of assets under management. LGIM is also a leading provider of UK and US defined benefit pension de-risking solutions. This means LGIM taking responsibility to pay all or part of companies’ final salary pensions. In return for which, it is paid a lump sum.
The US market has exceptional growth potential, with $3.0trn in defined benefit pension schemes. Only around 9% of these have already moved to insurance companies, such as Legal & General.
Finally, the company’s Retirement & Protection Solutions business remains a leading provider of UK retail retirement solutions and US term life insurance.
Synergies working to drive profits and growth
Additionally positive are the long-term synergies at play in the company’s business model. These are likely to drive profits and fuel growth for decades to come, I think.
According to Legal & General data, a corporate client in LGIM typically becomes a PRT client after 14 years. LGRI will then typically have a relationship with that client for another 30 to 40 years.
Also, Retail Retirement and LGIM may have a 30–40-year relationship with a customer during the defined contribution pension scheme accumulation phase. This may extend for another 15-30 years during the decumulation phase.
The company is not immune to market risk, of course. The mix of rising inflation and interest rates over 2022 led to a fall in LGIM’s assets under management from £1.309trn to £1.196trn .
For me, though, the company’s very high Solvency II ratio and extremely sound fundamentals offer considerable protection.
These, in addition to the company’s ongoing generous dividend payments, meant that I bought more Legal & General shares after the results were announced.