Neil Woodford is, without a doubt, the most popular portfolio manager in the UK. And that’s no surprise, given his long-term track record. Indeed, £10,000 invested with Woodford when he started out in the late 1980s, would now be worth well over £300,000.
Today, I’m looking at a dividend stock that Woodford owns in both his Equity Income Fund and his Income Focus Fund. The stock offers an attractive yield of 5.3% at present.
Legal & General Group
The stock I’m referring to is Legal & General Group (LON: LGEN)(LGEN.L).
Legal & General Group is one of the world’s largest insurance and investment management groups, with assets under management of approximately £950bn as at the end of June 2017. Established in 1836, the company looks after the financial security of over 10 million customers in the UK and the US.
At the end of June, Legal & General was the second largest holding in Woodford’s Income Focus Fund at 6.05% of the fund, and the third largest holding in his Equity Income Fund at 5.63% of the fund. Clearly, Woodford is confident about the company’s prospects.
I share Woodford’s bullish stance, and rate the stock highly for its dividend prospects.
Strong dividend growth
While the company cut its dividend in the Global Financial Crisis, dividend growth has been strong in recent years, with the dividend payout increasing from 6.4p to 14.4p per share over the last five years, a compound annual growth rate of 17.5%.
Last year’s payout of 14.4p equates to a strong dividend yield of 5.3% at the current share price, and City analysts forecast dividend growth of 6.2% and 5.7% this year and next.
After generating adjusted earnings per share of 22.2p last year, dividend coverage looks reasonable at 1.55 times. Analysts expect Legal & General to generate earnings of 23p per share this year, placing the company on a forward looking P/E ratio of an undemanding 11.7.
The insurer released half-year results last week, and the numbers were excellent, with operating profit climbing 27% to £988m and earnings per share surging 41% to 15.94p. The interim dividend was increased from 4.0p to 4.3p. Chief Executive Nigel Wilson was bullish in his assessment of the future, stating: “we have tremendous momentum across our business, a strong AA- rated balance sheet and increasing access to global growth opportunities, therefore we remain confident in our ability to deliver growth.”
With many high-yielding FTSE 100 companies struggling to grow their dividends at present, Legal & General stands out to me as a dividend stock with attractive dividend growth prospects.
Disclosure: Edward Sheldon, CFA owns shares in Legal & General Group.
This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.