This star dividend share still looks a bargain

Legal & General (LSE: LGEN) has long been showing star dividends FTSE 100. Based on 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 18.45p in 2021. The company added that it will achieve a five-year plan to increase its dividend from £3.3bn to £5.6-5.9bn by the end of 2024. .

A strong balance sheet supports a generous dividend

From the start of the Legal & General 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. As a result, even zero growth in both metrics from now until 2024 will allow a return of £8.0-9.0bn in cash and capital cumulatively. Another sign of the strength of the balance sheet is that the Solvency II ratio of the company increased to 236% in 2022, from 187% in 2021.

The underlying factors supporting these stellar numbers appear to be very solid for all four lines of business.

Solid fundamentals with high growth prospects

Pension solutions business Legal & General Retail Investments (LGRI) remains the market leader in the UK Pension Risk Transfer (PRT) space. Meanwhile, those are the top 10 players in the US domestic help market.

Legal & General Capital Investments’ asset origination business is increasingly attracting third-party capital investments 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 ranks 11th^Th 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 that LGIM takes responsibility for paying all or part of the company’s final salary pension. In return for which, it pays a lump sum.

The US market has tremendous growth potential, with pension schemes benefiting from $3.0trn. Only about 9% have moved to insurance companies, such as Legal & General.

Finally, the company’s Pension Solutions & Protection business remains a UK retail pension solutions provider and US term life insurance.

Synergies used to generate profits and growth

In addition, the positive is the long-term synergy in the company’s business model. This is likely to drive profits and fuel growth for decades to come, I think.

According to Legal & General data, corporate clients in LGIM usually become PRT clients after 14 years. LGRI will typically have a relationship with these clients for another 30 to 40 years.

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

Companies are not immune from market risk, of course. A mix of inflation and rising interest rates in 2022 saw LGIM’s assets under management fall from £1.309trn to £1.196trn.

However, for me, the company’s very high Solvency II ratio and excellent fundamentals provide sufficient protection.

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