L&G among these three top income picks

Income stocks Legal & General Group (LSE:LGEN), Standard Life (LSE:SDLF) and M&G  Ordinary Shares (LSE:MNG) have been described as compelling buys after a City firm flagged their “attractive and sustainable” dividends and strong outlook.

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Berenberg’s ongoing support for the UK life insurers follows a robust recent run for the trio’s FTSE 100 shares, including L&G after a 25% surge since March to a four-year high of 295p.

The bank sees further upside to 353p as it said a strong solvency position meant the 7.5% yielding L&G will be fully able to grow its dividend per share at its target 2% pace.

Standard Life, which changed its name from Phoenix Group in March, is Berenberg’s top pick thanks to the “extra optionality” provided by April’s £2 billion acquisition of Aegon UK.

The deal is set to complete by the year-end and will turn Standard Life from a smaller retail provider into the UK’s second-largest retail pensions and savings platform by assets.

It also establishes Standard Life as the UK’s second largest workplace pensions platform by assets, adding £74 billion and 2.1 million customers to the existing £71 billion offer.

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While Standard Life is waiting for the Aegon deal to close, it has continued to execute on its 2024-26 strategic plan that included a target to reduce its leverage ratio below 30%.

Berenberg estimates this has fallen to 29% from the 33% at 2025’s results, meaning that the company will have “substantial flexibility” to step up its capital management via both dividend growth and buybacks. It forecasts a £200 million buyback with 2026 results.

The company, which trades with a current dividend yield of more than 6%, has seen its shares rise by more than 35% over the past four months to reach 895p. However, Berenberg’s price target forecasts further growth to a new record at 975p.

It also has a Buy stance on M&G, which has risen by 30% since the end of March to reach 352p.

This week’s note flags upside to 370p, which reflects delivery in new business growth in bulk purchase annuities towards a £3-4 billion target in the 2027 financial year.

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Berenberg said all three groups were pursuing strategies aimed at increasing the proportion of earnings from capital-light and fee-based revenues, including asset management, with-profits and workplace pensions.

It said: “One key benefit of this strategy is that it allows quicker distribution of each group’s value creation to shareholders through a combination of buybacks and dividend growth.”

Legal & General is due to report interim results on 5 August before M&G on 3 September and Standard Life on 7 September.

Berenberg said the trio have benefited from strong structural growth in individual annuities alongside continuing solid demand for pension risk transfer (PRT) deals and a steady accumulation of defined contribution pension assets.

It believes that this growth momentum was partly offset in the first half of the year by uncertainty linked to the Iran conflict and competition from Pension Insurance Corporation Group and Just Group after their US private equity takeovers.

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Despite the temporary moderation of net inflows and of growth in PRT deals, it points out that all three insurers benefited from strong solvency and are continuing to grow their dividends, albeit at a relatively modest 2% year-on-year pace.

The bank said: “We believe that the combination of attractive and sustainable dividends and a strong outlook for new business growth in the medium term makes these stocks compelling buys.”