Thursday 12 November 2020 11:59 am

Legal & General shares fall after insurer scales back dividend plans due to Covid-19

Shares in Legal & General fell today after the insurance giant kept its final dividend payment for 2020 flat due the impact of the coronavirus pandemic and cut its five-year dividend growth target. 

In an update to the stock exchange this morning, Legal & General said it had delivered a “resilient” performance so far this year and its balance sheet “has remained robust”.

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From 2021, the board of the company – traditionally one of the larger dividend payers in the UK – intends to increase the insurer’s dividend “at low to mid-single digits”, it said. 

“We felt that a pause year was a good balance between rewarding shareholders – where many aren’t rewarding at all – versus holding back for potential uncertainty,” chief financial officer Jeff Davies told reporters.

Shares in Legal & General fell as much as three per cent following the update.

While Legal & General has not suffered a major impact from the pandemic, executives told reporters that UK housing sales dropped during the first lockdown in March, while US life insurance claims increased due to the virus. 

Legal & General is a direct investor in housing and commercial real estate, and is one of the largest investors in the UK stock market. 

The company said it will aim to have cash and capital generation and net surplus generation exceed dividends between 2020 and 2024, and to have earnings per share to grow faster than dividends.

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“We intend, in aggregate, to generate £8-9bn both of cash and capital, and to dividend £5.6-5.9bn,” the group said in its trading update. 

“Legal & General’s plans for dividend growth over the next five years have been a slight disappointment for analysts,” said Nicholas Hyett, analyst at Hargreaves Lansdown. 

“However,” he continued, “that’s a reflection of the fact spare cash will instead be used to fund expansion in the group’s core annuities businesses, and actually we think that’s a positive in the long term.”

Many of Legal & General’s insurance peers have suspended dividend payments for 2020 amid the economic downturn caused by Covid-19. 

Earlier this year, the Bank of England’s Prudential Regulation Authority warned insurers to “pay close attention to the need to protect policyholders and maintain safety and soundness” when considering whether to issue dividends. 

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“Legal & General has a clear and well established strategy,” said chief executive Nigel Wilson. “The markets we operate in are large and growing and we are well placed to capitalise.”

“We have announced today a clear set of five year financial ambitions, delivering an attractive combination of income and growth,” he added.