Despite Covid-19 we can hope for a stream of rising dividends from L&G
Although the insurer only maintained its interim payment, the business is still prospering and growth in the divi should resume soon
INVESTMENT trusts now dominate our Income Portfolio. If we include our two venture capital trusts they account for 14 of our 24 holdings. We also have seven bonds, so just three individual listed businesses remain: National Grid,
New York-listed New Residential Investment and Legal & General. The last-named reported interim results on Wednesday and Questor read them with a sense of relief. Although we had not expected a dividend cut it is always, in the current climate, a possibility, as BP brought home to investors on Tuesday. In the end L&G maintained its own interim payment at last year’s level of 4.93p. What can we expect of the full-year divi?
The company said it would “set a final dividend that is prudent, consistent with our risk appetite and in line with our dividend policy”.
That policy is to pay “progressive” dividends, “reflecting the group’s expected underlying business growth, including net release from operations and operating earnings”. “Progressive” is the City’s term for “rising”, while “net release from operations” means the freeing up of money that was held back to cover contingencies such as increased longevity of those who receive annuity income from the insurer. So, in the absence of unexpectedly severe damage from the pandemic or some other source, we can expect our income from L&G to rise this year and in the coming years.
Reassuringly, the insurer said “our businesses and balance sheet have shown resilience during the first several months of the pandemic”. It put the costs of Covid-19 to the business at £129m, which led to a fall in operating profits to £946m, compared with £1bn at the same stage last year. So far it has avoided defaults among the bonds it holds to provide income to annuity holders, while the amount of money run by its asset management arm has grown and it continues to invest more into assets that it holds on its own account. L&G strikes Questor as a well run business with a clear and well executed strategy and we will hold on to its shares.
IHT Portfolio update: Fulcrum Utility Services
A lot has happened to this company since we last covered it in October last year: it has sold its domestic gas connection and meter business, settled a row with a pair of “activist” investors, suffered disruption during lockdown and scrapped its dividend as a result.
The sale of the gas division was well timed: as an asset that made predictable income it attracted a good price, and the cash raised put the firm in a better position to face the pandemic. The row with the activists has arguably improved governance. We hope for a return of the divi this year and will hold.