Income stock L&G continues to deliver

As one of the most generous dividend payers in the FTSE 100 Index, high-yielding Legal & General didn't disappoint today after another well-received set of annual results.

Its full-year pay-out rose another 7% to 15.35p - a figure in line with market expectations as the pensions, insurance and investment company continues to yield in the region of 6%.

While market volatility has held back the shares in recent weeks, they were up 1% to 260p in post-results trading today. In fact, L&G has plenty of fans in the City who believe it should be trading at closer to 300p.

There's also strong support from fund manager Neil Woodford, whose Income Focus and Equity Income funds view the company as one of their core holdings.

After today's results, in which L&G grew headline profits by a bigger-than-expected 32% to £2.05 billion, Barclays Capital noted that the UK company was "building momentum and firepower".

The comment on firepower relates to the £2.2 billion of excess capital over and above a 160% Solvency II ratio. This solvency figure stood at 189% at the end of 2017, compared with 171% in 2016, while L&G estimates it has since grown to 196% on the back of interest rate increases.

Analyst Alan Devlin said: "While this capital is not burning a hole in Legal's pocket, we believe this gives Legal significant firepower for both organic and inorganic investment."

Having seen compound annual growth in the dividend of 21% since 2009, Devlin rejected criticism in some quarters that L&G is overpaying on its dividend.

He noted that today's growth in the pay-out of 7% compared with a rise in underlying earnings per share of 9% in 2017, which is broadly in line with L&G's 10% medium-term growth target.

Explaining his 290p price target, Devlin added: "We think that the strong and transparent cash flows generated by L&G will support the dividend, and the company has levers to pull to protect the dividend in stress scenarios."

Source: interactive investor       Past performance is not a guide to future performance

L&G's businesses are predominantly UK based, but it's also growing rapidly in the US with less mature international businesses in Europe, the Gulf and Asia.

It has built its strategy around positioning itself to benefit from six long-term growth drivers. These include ageing demographics, the impact of welfare state reforms and the globalisation of asset markets.

Inflows of £44 billion in 2017 have taken the company's investment management business to close to £1trillion assets under management, while Legal & General Retirement division broke new ground in the United States with 15 pension risk transfer deals.

Today's results were helped by a £332 million release from the reserves it sets aside to cover future insurance and pension payments. Having reviewed longevity assumptions, L&G released this money on the basis that the recent trend for improvements in life expectancies is slowing.

Excluding mortality releases and a one-off US tax benefit, 2017 EPS was 23.10p compared with 21.22p in 2016. Return on equity (RoE) rose to 25.6% from 18.8% a year earlier.

Chief executive Nigel Wilson said: "Our shareholders are enjoying terrific EPS and RoE growth, while our 'inclusive capitalism' model ensures customers and society also benefit."