This star dividend share still looks a bargain

Legal & General’s stellar 2022 results, its sound fundamentals and its ongoing commitment to shareholders make this a must-buy dividend share for me.

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Legal & General (LSE: LGEN) has long been a star dividend share in the FTSE 100. Based on its recently released results, this looks set to continue.

In its 2022 results, the financial services provider promised a dividend of 19.37p per share, up 5% from 2021’s 18.45p. The company added that it is on track to achieve its five-year plan to increase dividends from £3.3bn to £5.6-5.9bn by the end of 2024.

Strong balance sheet underpins generous dividends

From the start of Legal & General’s five-year plan in 2020 to the end of 2022, it has achieved £5.1bn of cash generation and £4.9bn of cumulative capital generation. It stated in its results that even zero growth in both metrics from now to 2024 would allow it to generate £8.0–9.0bn in cumulative cash and capital. Another sign of balance sheet strength is the company’s Solvency II ratio rising to 236% in 2022, from 187% in 2021.  

The fundamental factors underpinning these stellar numbers look very solid to me across all four of its business lines.  

Solid fundamentals with high growth prospects

The Legal & General Retail Investments (LGRI) retirement solutions business remains a market leader in the UK Pension Risk Transfer (PRT) space. Meanwhile, it’s a top 10 player in the US PRT market.

Its Legal & General Capital Investments asset origination business is increasingly attracting third-party capital investment directly and through collaboration with Legal & General Investment Management (LGIM). This is to meet the growing client demand for alternative assets.

LGIM itself remains a leading global asset manager. It is ranked 11th in the world, with £1.2trn of assets under management. LGIM is also a leading provider of UK and US defined benefit pension de-risking solutions. This means LGIM taking responsibility to pay all or part of companies’ final salary pensions. In return for which, it is paid a lump sum.

The US market has exceptional growth potential, with $3.0trn in defined benefit pension schemes. Only around 9% of these have already moved to insurance companies, such as Legal & General.

Finally, the company’s Retirement & Protection Solutions business remains a leading provider of UK retail retirement solutions and US term life insurance.

Synergies working to drive profits and growth 

Additionally positive are the long-term synergies at play in the company’s business model. These are likely to drive profits and fuel growth for decades to come, I think.

According to Legal & General data, a corporate client in LGIM typically becomes a PRT client after 14 years. LGRI will then typically have a relationship with that client for another 30 to 40 years.

Also, Retail Retirement and LGIM may have a 30–40-year relationship with a customer during the defined contribution pension scheme accumulation phase. This may extend for another 15-30 years during the decumulation phase.  

The company is not immune to market risk, of course. The mix of rising inflation and interest rates over 2022 led to a fall in LGIM’s assets under management from £1.309trn to £1.196trn .

For me, though, the company’s very high Solvency II ratio and extremely sound fundamentals offer considerable protection.

These, in addition to the company’s ongoing generous dividend payments, meant that I bought more Legal & General shares after the results were announced.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Simon Watkins has a position in Legal & General. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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