March 14, 2012 / 10:36 AM / 5 years ago

L&G hikes dividend, atoning for 2008 cut

LONDON (Reuters) - British insurer Legal & General (LGEN.L) hiked its 2011 dividend by more than a third, easily beating analysts' forecasts, and more than reversing an unpopular cut in the payout during the 2008 financial crisis.

Investors will get 6.4 pence per share, L&G said on Wednesday, exceeding the 2007 high watermark of 5.97 pence which was slashed the following year to preserve capital as markets sank in the wake of the collapse of Lehman Brothers.

Analysts had expected a 2011 dividend of 5.93 pence, an increase of 25 percent, according to a company poll.

L&G shares were up 5.3 percent at 131.9 pence by 1025 GMT, the top riser in the UK's blue-chip FTSE 100 .FTSE share index, which was 0.4 percent higher.

"This finally lays to rest the ghost of the 2008 dividend cut," analyst Eamonn Flanagan at stockbroker Shore Capital wrote in a note.

Britain's fifth-biggest insurer, which also reported a better-than-expected 5.3 percent increase in its 2011 profit, said there was scope for more dividend rises.

"It still looks very positive for further increases in future," L&G Chief Executive Tim Breedon told reporters on a conference call.

The 2011 dividend is covered 2.25 times by cash, and L&G aims to move towards a coverage ratio of two times, although it could go lower if market and regulatory uncertainties lift, Breedon said.

The 176-year old 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.

L&G made a 2011 operating profit of 1.06 billion pounds ($1.67 billion), ahead of the 1.04 billion penciled in by analysts, reflecting a 34 percent jump in earnings at its LGIM asset management arm, and an 11 percent profit increase at its savings and pension division.

L&G, which last year insured glassmaker Pilkington's pension fund against members living longer than expected and took over the pension liabilities of asbestos maker T&N, said it expected to do more such deals in 2012 as company retirement schemes increasingly seek to shed investment and longevity risk.

"The forces that present these opportunities to us are very much moving in our direction," Breedon said, estimating that the so-called bulk annuity market could be worth between 5 and 8 billion pounds in Britain this year.

L&G also expects to benefit from forthcoming regulatory changes in the UK under which employees will be automatically enrolled into their company pension schemes.

The company provided no update on the search for a successor to Breedon, who said in September he would step down at the end of this year.

L&G shares are up 24 percent since the start of the year, making them one of the best-performing stocks in the Stoxx 600 European insurance index .SXIP, which has risen 18 percent.

($1 = 0.6355 British pounds)

Reporting by Myles Neligan; Editing by Sudip Kar-Gupta and Mark Potter

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