IN THE INTERESTS OF BALANCE12 Jun 2026 15:03
Why Jefferies has recently raised questions over the dividend
Analysts at investment bank Jefferies recently downgraded L&G, arguing the company’s income story is deteriorating based on a flat forecast for free cash flow generation through 2028.
The analysts point out that their forecasts sit around 8% below consensus estimates for net surplus cash generation (a proxy for free cash flow) and 10 percentage points below consensus estimates for regulatory solvency ratios.
As this distance from consensus estimates indicates, Jefferies’ take is a deviation from the broader view of the business and L&G recently announced a £1.2 billion share buyback, the largest in its history, and has committed to returning more than £5 billion to shareholders between 2025 to 2027.
The lion’s share of the share buyback is returning proceeds from the sale of L&G’s US insurance business to Meiji Yasuda for approximately £1.8 billion, with the rest earmarked for business growth.
Including a 2% increase in the divided, L&G anticipates returning a total of £2.4 billion to shareholders in 2026, equating to around 16% of the company’s current market value.
Which financial metrics are the most important?
When evaluating insurance companies, the standard accounting dividend cover (earnings per share divided by earnings per share) can be misleading due to non-cash market movements required by IFRS (International Financial Reporting Standards) rules.
Instead, analysts and management judge dividend safety by looking at the amount of capital the business generates from operations alongside regulatory solvency coverage (the amount of surplus capital the business holds above the minimum).
In its full year results on 11 March L&G revealed operating surplus capital of £1.5 billion or 26.78p per share, up 8% and a dividend of 21.79p per share, which equates to a dividend cover of 1.2 times.
This means L&G generated roughly 23% more regulatory capital than it paid in dividends, before considering future growth capital. Net operating surplus capital generation was £1.3 billion.
Core operating profit grew 6% to $1.6 billion and core operating earnings per share grew 9% to 20.93p.
What does the balance sheet look like?
The ultimate health of the balance sheet is determined by the amount of capital L&G holds over and above the regulatory minimum solvency requirement, measured as a percentage. For L&G this stands at a healthy 210%.
Solvency coverage dipped from 230% in 2025 due to reallocation of capital to fund the share buyback.
The company operates a self-imposed solvency coverage ‘buffer zone’ of between 160% to 190% which means it is sitting 20 percentage points above the top end of the range and 110% above the regulatory minimum.
Further to my earlier email and in the interests of balance, you may find the following AJ BELL article an interesting read. It also manages almost everything the layan needs to know about Legal & General. Hope you f
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