I just like the passive revenue prospects of a excessive dividend yield from a high quality firm. I regard FTSE 100 monetary companies Authorized & Common (LSE: LGEN) as a high quality firm. It has been round for hundreds of years, has a big buyer base, and a confirmed enterprise mannequin. The Authorized & Common dividend can also be one thing I like so much. Its 8.8% yield places the corporate among the many most beneficiant of dividend payers within the blue-chip index.

Nevertheless, a excessive yield generally is a pink flag that the Metropolis expects a dividend reduce could occur in future and is pricing the share accordingly. The 8.8% Authorized & Common dividend yield is properly over twice the index’s common, which presently stands at 3.5%.

Authorized & Common has grown its dividend yearly lately and plans to maintain doing so. But it surely has set out an expectation of decrease annual progress within the dividend per share (2% as a substitute of 5%) from this yr onwards. What does that imply for me as a shareholder?

I’m planning to carry

The reply could grow to be: not a lot.

I plan to hold onto my Authorized & Common shares as I reckon the dividend yield stays extremely enticing. Whereas a slower progress charge is just not good information, the yield is already properly above common and even low single-digit share progress within the dividend per share might make it extra enticing nonetheless.

The corporate feels flush sufficient with money to be shopping for again its personal shares frequently. Certainly, this month the agency introduced plans to spend half a billion kilos shopping for again its personal shares.

Its core working revenue grew final yr. However the revenue earlier than tax utilizing IFRS accounting requirements was extra modest, at £542m versus £1.6bn for the core working revenue. Accounting in monetary companies could be devilishly sophisticated. That may make it laborious for buyers to get a really clear image of how an organization is acting at a granular stage.

However, whereas earnings have fallen, Authorized & Common continues to be worthwhile and has a confirmed means to generate massive sums of extra money. That issues as a result of it’s such free money flows that allow an organization to fund its dividends.

Retaining reasonable expectations

However whereas the juicy Authorized & Common dividend continues to draw me, I additionally have to maintain my enthusiasm grounded in actuality.

The share price has soared 51% in 5 years.

That sounds nice however it primarily displays a droop through the pandemic. Over the previous yr, the share has dropped 4%.

As the corporate reduces in dimension on account of asset gross sales, I feel its share price might battle to maneuver up a lot, although the plan to purchase again its personal shares might assist in that regard.

The decrease dividend progress charge, whereas nonetheless in optimistic territory, may be an indication that the corporate sees doubtlessly decrease future enterprise progress prospects than earlier than.

So, I’m excited in regards to the dividend potential of my Authorized & Common shareholding, however am retaining my expectations modest in terms of share price efficiency.