The legion of income investors holding shares of Legal and General were cheered by the insurance leviathan's division to bump up the 2011 dividend by more than a third, well ahead of market expectations.
The final dividend in respect of fiscal 2011 has been increased by a whopping 39% to 4.74p per share, meaning the full year dividend rises to 6.40p, up 35% on 2010's payment of 4.75p and well above the 5.94p the market had been expecting.
The board said it was able to be so generous because of double digit growth in operational cash and net cash generation, coupled with the high visibility of future cash flows. Operational cash generation shot up from £840m in 2010 to £940m in 2011.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Tim Breedon, the group's Chief Executive, said Legal & General (L&G) had a strong 2011. "All four of our operating business divisions - Risk, Savings, Investment management and International - delivered increased sales, cash generation and profits. Our balance sheet is strong, and our outlook for 2012 positive," Breedon said, pleasing a market which promptly chased the shares up to 132.2p in the first hour of trading after the release of the figures, up a rise of just less than 7p.
Group operating profit rose to £1,056m in 2011 from £1,002m in 2010, despite the Risk division's contribution being flat at £560m; the Risk business is what the person in the street would call the insurance operations - home & contents insurance and so on, as well as life assurance.
The Savings business's operating profits rose to £128m from £115m the year before, while the Investment Management (£234m vs £206m in 2010) and International (2011: £137m; 2010: £102m) units also powered ahead.
Group operating profit was in line with market expectations but profit before tax, which eased to £956m from £1,092m in 2010, was below market expectations of £976m. The decline in pre-tax profit was due to the absence this time round of asset related investment variances, which contributed £185m to profits in 2010.
The group's balance sheet got a bit healthier, with the Insurance Groups Directive (IGD) surplus rising to £3.8bn from £3.7bn in 2010. The IGD surplus is a Financial Services Authority regulatory measure which calculates surplus capital within the group, and can be thought of as a safety cushion for nervous shareholders.
"Legal & General has significant scale: seven million customers and assets under management of over £370bn. Our broad product range, diversified distribution and ability to deliver will enable us to grow the business, further enhance shareholder value, and take advantage of the opportunities created in a fast-changing market," Breedon said.
jh
‘Inheritance tax insurance’ enquiries are soaring – but is it worth it?
MPs warn over Lifetime ISAs which could leave savers out of pocket
