Share lift as L&G increases dividend payout

Highlighting its strong balance sheet and positive outlook for this year, the company increased its annual dividend to shareholders by 35 per cent to 6.4p a share, much higher than City forecasts.

The increase, which reverses cuts made in 2008 and 2009, triggered a 5 per cent rise in L&G’s share price as analysts praised the company’s performance.

Operating profits were up 5 per cent to £1.06bn and worldwide sales lifted 7 per cent to £1.9bn, while the dividend payout exceeded the 5.97p a share paid in 2007.

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 worth £376m was more than twice covered by the cash generated in the year, while Mr Breedon added that L&G had significant scale with seven million customers and £370bn of assets under management.

He added: “We remain convinced that attractive and increasing returns are achievable in our core UK markets.”

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.”

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