Legal & General Group's (LON:LGEN) Dividend Will Be Increased To £0.1536

Legal & General Group Plc (LON:LGEN) has announced that it will be increasing its periodic dividend on the 5th of June to £0.1536, which will be 5.0% higher than last year's comparable payment amount of £0.146. This takes the dividend yield to 8.8%, which shareholders will be pleased with.

Check out our latest analysis for Legal & General Group

Legal & General Group's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the dividend made up 740% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Over the next year, EPS is forecast to expand rapidly. If the dividend continues along recent trends, we believe we could see the payout ratio reaching 80%, which is definitely on the higher side, but still sustainable.

Legal & General Group Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of £0.093 in 2015 to the most recent total annual payment of £0.214. This works out to be a compound annual growth rate (CAGR) of approximately 8.7% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Over the past five years, it looks as though Legal & General Group's EPS has declined at around 37% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Legal & General Group's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Legal & General Group will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Legal & General Group (2 don't sit too well with us!) that you should be aware of before investing. Is Legal & General Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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