Legal & General Group (LON:LGEN) Is Increasing Its Dividend To UK£0.052

Legal & General Group Plc (LON:LGEN) has announced that it will be increasing its dividend on the 20th of September to UK£0.052, which will be 5.1% higher than last year. This makes the dividend yield 6.4%, which is above the industry average.

Check out our latest analysis for Legal & General Group

Legal & General Group's Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Legal & General Group was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to fall by 6.1%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 57%, which is comfortable for the company to continue in the future.

Legal & General Group Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2011, the first annual payment was UK£0.048, compared to the most recent full-year payment of UK£0.18. This means that it has been growing its distributions at 14% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see Legal & General Group has been growing its earnings per share at 12% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Legal & General Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Legal & General Group's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Legal & General Group is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Legal & General Group that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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