Insurer Legal & General has pressed ahead with its first-half dividend, although at a lower rate than investors were expecting.
Many investors expect insurance companies to be a reliable source of dividends but pressure from regulators this year forced most of them to withhold their full-year payouts. Legal & General was one of the few UK insurers to resist, paying out £750m of dividends in June.
On Wednesday the company said it would pay a 4.93p per share first-half dividend. That is the same as last year’s level but analysts were expecting a small increase, based on the formula that the company usually uses to calculate its first-half payouts.
Jeff Davies, chief financial officer, said: “We didn’t really think it would be appropriate to increase [the dividend] by 7 per cent at this point.”
Legal & General’s shares slipped 2 per cent on Wednesday morning, and have lost almost a third of their value in the year to date.
Gordon Aitken, an analyst at RBC Capital Markets, said: “We see this dividend caution as merely temporary and not an indication that dividend growth will slow. We wonder if the group is finally responding to the regulatory pressure as so many other insurers have done.”
The decision to hold the dividend came despite a 73 per cent drop in first-half pre-tax profits to £285m as the fallout from the coronavirus crisis took its toll on the insurer. Legal & General paid out on life insurance policies, while it was also hurt by the fall in interest rates.
Its housebuilding business, Cala Homes, was hit by the lockdown, which forced it to close many of its building sites.
Mr Davies said it had been a “resilient” performance from the company.
Profits from Legal & General’s retirement business, which sells annuities to individuals and also takes on corporate pension schemes, rose 10 per cent to £721m. The company said there was still “robust” demand from groups that want to pass their pension schemes on to insurers.
“The predictions are for a £20bn-£25bn market in the second half, which would be the second biggest on record in the UK. We have ambitions to write a third of the market . . . we can see a good pipeline,” said Mr Davies.
Mr Aitken added: “The opportunity ahead is massive given there are £2tn of UK defined benefit pension liabilities. L&G is well placed to take it as the market leader.”