Yahoo Finance

Over the past 10 years Legal & General Group Plc (LON:LGEN) has been paying dividends to shareholders. The company is currently worth UK£15b, and now yields roughly 6.3%. Should it have a place in your portfolio? Let’s take a look at Legal & General Group in more detail.

See our latest analysis for Legal & General Group

How I analyze a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

• Is their annual yield among the top 25% of dividend payers?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has it increased its dividend per share amount over the past?

• Is is able to pay the current rate of dividends from its earnings?

• Will it be able to continue to payout at the current rate in the future?

How does Legal & General Group fare?

The current trailing twelve-month payout ratio for the stock is 57%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect LGEN’s payout to remain around the same level at 61% of its earnings, which leads to a dividend yield of around 7.3%. In addition to this, EPS should increase to £0.32.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Although LGEN’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.

Compared to its peers, Legal & General Group produces a yield of 6.3%, which is high for Insurance stocks.

Next Steps:

With this in mind, I definitely rank Legal & General Group as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three relevant factors you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for LGEN’s future growth? Take a look at our free research report of analyst consensus for LGEN’s outlook.

2. Valuation: What is LGEN worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether LGEN is currently mispriced by the market.

3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.