Is Legal & General Group plc the perfect dividend stock after today's results?


When hunting for high-quality dividend stocks, attributes that I generally look for include a high yield, solid dividend coverage, a track record of dividend increases, strong business momentum and an attractive valuation. One FTSE 100 company that ticks these boxes, is Legal & General Group(LSE: LGEN). Here's a look at why I rate the company highly as an income stock.

5.9% yield

For starters, Legal & General has one of the best yields in the FTSE 100 right now. The investment manager has today declared a dividend of 15.35p per share for FY2017, up 7% on last year, which equates to a superb yield of 5.9% at present. In contrast, the average trailing yield for the FTSE 100 is just 2.9%.

1.5 times dividend cover

A yield of that magnitude is often worth approaching with caution, as it can signal that the company is in trouble and may be about to cut its dividend. However, in Legal & General's case, this is not the case. The company generated earnings per share of 23.1p for 2017, giving a dividend coverage ratio of 1.5. This suggests that the dividend is not at risk of being cut in the near term.

Strong dividend growth

The investment manager's recent dividend growth track record is also worth noting. Yes, the company did cut its payout during the Global Financial Crisis. However, since then, it has recorded eight consecutive dividend increases. And the growth has been impressive too. In the last three years, the payout has been increased by 36%. Analysts expect a further 6% increase for 2018.

2017 performance

Today's 2017 full-year results suggest that the company has significant business momentum at present. The pensions specialist recorded 32% growth in operating profit for the year, which was boosted by changes in life expectancy forecasts. This allowed the company to release £206m from its reserves. Adjusted earnings per share climbed 9% to 23.1p per share, with the group stating that its ambition is to achieve EPS growth of 10% per year out to 2020.

Chief Executive Nigel Wilson was upbeat about the performance of the business and future prospects, commenting: "Legal & General's strategic focus, alignment to global growth drivers and excellent execution, allowed us to deliver a record £2.1bn operating profit in 2017. Our shareholders are enjoying terrific EPS and ROE growth, while our 'inclusive capitalism' model ensures customers and society also benefit. We remain confident that our unique business model, strong management team, collaborative culture, and strategic focus can deliver further growth in 2018 and beyond."

Low valuation

Lastly, despite the strong performance of the business and the excellent yield on offer, Legal & General shares still trade at a very reasonable valuation. Today's EPS figure places the stock on a trailing P/E of just 11.3, which I believe is a very fair price to pay for the business. The shares have drifted down with the rest of the market in the last month or so, and at today's price of 260p, they represent excellent value, to my mind.

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Edward Sheldon owns shares in Legal & General Group. 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.