Legal & General’s five year plan disappoints market analysts

Legal & General expects full year operating profit to be broadly in line with the £2.3bn achieved in 2019. That reflects positive results across all the group’s major business units in the second half.

The group intends to keep the full year 2020 dividend flat year-on-year, but set out an ambition to grow the dividend by low to mid-single digits from 2021. The planned rate of dividend growth is lower than some analysts had hoped for.

Between 2020 and 2024 Legal & General intends for cash and capital generation to “significantly” exceed dividends, with earnings per share also growing faster than dividends.

The shares fell 3.6% in early trading.

Nicholas Hyett, Equity Analyst at Hargreaves Lansdown said: “Legal & General’s plans for dividend growth over the next five years have been a slight disappointment for analysts, however, that’s a reflection of the fact spare cash will instead be used to fund expansion in the group’s core annuities businesses, and actually we think that’s a positive in the long term.

Annuities are a capital intensive business, with the group having to stump up some of its own capital every time it writes a new annuity. However, they offer the potential for steady returns over the long term, and, given that the products also make use of Legal & General’s other expertise in direct investment, underpin progress in the rest of the company. With Legal & General shares already offering a very healthy yield of over 7% we think focussing on long term earnings growth over dividends is the right decision.

Looking more at the here and now, activity seems to have picked up in the second half – after global market volatility and lockdowns around the world hit performance in the second half. All being well that trend should continue into the end of the year despite the new round of lockdowns.”