L&G dividend rise allays investor gloom Legal & General unveiled a bigger-than-expected 20 per cent increase in its annual dividend on Wednesday, giving respite to investors in the insurance sector after the dividend cut announced by rival RSA and concerns that Aviva might follow suit. L&G increased its annual payout to shareholders from 6.4p per share to 7.65p. Analysts had on average been expecting the total dividend to come in at 7.49p, according to the consensus forecast circulated by the company. Kevin Ryan, an Investec Securities analyst who has a "hold" recommendation on L&G shares, described the insurer's move as "bold" given the net cash it generated during the year was "broadly flat" at £865m, compared with £846m in 2011. "We view this as the key number in the results as this pays the dividend," he said, adding that the impact of a regulatory shake-up of the way investments are sold in the UK was still not clear. Shares in L&G rose 1.4 per cent to 164.9p in early morning trading in London. They have increased in value by more than a third over the past year. RSA shares fell heavily when it cut its final dividend by a third two weeks ago, blaming low interest rates for weakening investment returns. The move prompted murmurings among investors of a possible revolt over executive pay. L&G's bullishness adds to the pressure on Aviva, the UK's biggest insurer, which reports its own annual results on Thursday. While most analysts expect Aviva to maintain its dividend, some suspect the group could cut it by as much as a sixth. Nigel Wilson, L&G chief executive, said the payout reflected L&G's confidence in future cash flows amid what it sees as a range of positive trends for the sector, such as ageing populations and falling state spending on welfare. The company said the cost of the 2012 total dividend would be covered 1.9 times by its net cash generation, leaving it with more room for dividend growth. "I think we have still got quite a lot of dividend headroom," Mr Wilson said, adding that the group was not particularly sensitive to the low interest rates that were cited as problematic by RSA. L&G posted an operating profit of £1.09bn, up 3 per cent. Pre-tax profit rose 56 per cent to £1.21bn. Diluted earnings per share rose 12 per cent to 13.66p per share. The company had been obliged to cut its final dividend by half in 2009 during the financial crisis.