L&G leads FTSE 100 after dividend rise

LEGAL & General (L&G) posted the biggest rise on the FTSE 100 after the insurer said it would increase its 2011 dividend by more than a third to 6.4p.

The board justified the bumper payout – which reverses a cut made during the 2008 financial crisis – on the basis that the company enjoyed “the combination of growth and strong cash generation”.

“It still looks very positive for further increases in future,” L&G chief executive Tim Breedon told reporters yesterday.

Operating profit was up five per cent to £1.06bn as sales gained seven per cent to hit £1.9bn, assisted by a 34 per cent jump in earnings at its asset management arm.

Shares in L&G closed the day up 5.5 per cent at 134.3p, meaning they have now gained an astonishing 42 per cent in the last six months. The insurer has been at the forefront of an industry drive to boost cash generation by reducing commission payments to brokers and focusing on products that require lower capital reserves.

Although the 2011 dividend is covered 2.25 times by cash generation, L&G aims to move towards a coverage ratio of two times. Breedon said it could go even lower if market and regulatory uncertainties are lifted.