L&G is a large FTSE 100 company with a market cap of around £16bn employing over 8,000 people serving 10 million customers. It is responsible for investing over £500bn worldwide with operations in USA, France, The Netherlands, Egypt, India and the Gulf. However the UK still accounts for the majority of its business.
They are the UK’s leading provider of individual life insurance as well as a market leader in group protection, annuities and workplace pensions. L&G are a top 20 global asset manager and one of Europe’s largest institutional asset managers as well as being the UK’s largest investment manager for UK pension schemes.
The shares joined my portfolio for the first time shortly after last year’s results. Around this time we had the budget and the surprise announcement of changes to pensions which would impact LGENs annuity business. Furthermore, the Financial Conduct Authority announced they would be conducting an investigation into 30 million poorly managed pension and investment products sold between the 1970s and 2000 to see whether customers have been treated fairly. This subsequently turned out to be a red herring but for a short time the share price of all the large insurers were sent into a tailspin and I took advantage to pick up the shares for my ISA income portfolio.So far, they have performed very well and in addition to dividends, the share price has increased over 35% - definitely one of my better decisions of the past 12 months!
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| LGEN 1 yr price chart (click to enlarge) |
Legal & General has a diversified business model. In 2014, 31% of the firm’s operating profit came from UK insurance, 29% from retirement products, 23% from investment management, 13% from investing its own capital and 4% from the company’s American operations.
Results
The Company has today announced its preliminary full year results for 2014 (link via Investegate). At the half way point last August, earning and profits were up 9% and the interim dividend was hiked by 21% to 2.9p. Todays results show earnings and profits up 10% and the full year dividend lifted 21% to 11.25p (2013 9.3p).
Nigel Wilson, Group Chief Executive, said:
"Our market leading growth businesses coupled with continuous cost reductions have given us scale and efficiency in our chosen markets. The five global macro trends driving our strategy - ageing populations, globalisation of asset markets, welfare reform, digital connectivity and bank retrenchment - create long term growth opportunities, which we position our businesses to capture. The rapid growth of LGIM's international business to over £100bn, the £5bn of investment in physical assets in the UK, and our entrance into the lifetime mortgage market are all examples of the successful execution of our strategy.
Over the last five years we have increased dividend per share from 3.84p to 11.25p - a nearly threefold increase. In 2014 we produced another year of double digit growth across our key financial metrics enabling us to reward shareholders with a 21% rise in the dividend." The dividend annualised growth rate (CAGR) is 24%.
LGEN have implemented a policy of reducing dividend cover to 1.5x earnings - this should be achieved over the coming year so I expect the current payout to be lifted in excess of 10% and have pencilled in a figure of 12.5p for 2015.
It appears the profits are slightly below analysts forecasts and the share price is down 3% at 268p at the time of posting. The shares are currently trading on a P/E of 16 and yield of 4.2%.
I am happy with my acquisition and will be holding for the foreseeable - possibly adding should the share price pull back significantly.
As always, please DYOR
Legal & General are a really very nice looking company, I agree. If I was not so heavy with insurers (chiefly specialist insurers but also Old Mutual) I would have invested recently. Their impressive growth seems set to continue for some time yet despite obvious headwinds!
ReplyDeleteAll round the company looks sound fundamentally and management seems very capable indeed!
Thanks for the post. Very interesting.
Hi DD,
DeleteGood to see another UK based blogger on the scene - the more the merrier!
Thanks for leaving a comment - I am pleased to see LGEN sp back on the upward trajectory - wonder if there will be any more surprises in next weeks budget.
Yes, I am happy with my purchase and it fits very well with my portfolio as I have no other insurers.
Had a quick look at your site - looks like you have put together a very handy income portfolio in double quick time - good luck with it!
It was my pleasure. Thanks for the interesting posts!
DeleteYes, Legal & General is such a solid performer of late it certainly deserved a healthier share price movement. The budget will be interesting. However, most of the life insurers seems to have sought to position themselves well to take a little of the force out of any blows they receive.
Thanks. Yes, I have been able to largely thanks to the fact that I have been an assiduous saver for years and my monthly savings rate tends to be at least 60% a month. As a result, I have been able to regularly chuck fairly large amounts of money into my investments.
Inevitably this is going to slow. I have my cash savings down near to where I feel comfortable and my wage visibility from about October this year will be rather poor! We will see!
I am amazed at how much I have achieved in a short time. I was into investing for several years prior to actually doing so (annoyingly missing the significant gains achieved over that time). However, I did not want to until I felt confident I at least had a reasonable beginners grip on how to do it. But you learn so quickly! Other writers like yourself help no end. So thanks for that!
Keep up the good work and good luck yourself!