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

The Daily Telegraph - Business - - Business - RICHARD EVANS

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.

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