UBS expects Prudential PLC (LSE:PRU) to increase its dividend and share buybacks to about 65% of the company’s free cash flow available for shareholders, but says a payout higher than this is unlikely.
This payout ratio represents the portion of Prudential’s surplus cash that the company can safely return to investors without risking its financial stability.
Prudential follows a capital management policy that keeps a safety buffer, called the free surplus ratio, between 175% and 200%.
This cash cushion ensures it has enough capital to meet regulatory demands and unexpected costs.
UBS warns that paying out more than 65% of available cash would reduce this buffer below the target range, which could weaken Prudential’s financial position over time.
The broker forecasts dividend growth of 15% annually, alongside share buybacks of $600 million in 2026 and $1.1 billion in 2027, plus special buybacks of $1 billion annually over three years.
Altogether, this would return about 20% of the company’s current market value to shareholders by 2028.
However, when adjusting for Prudential’s capital management limits, UBS finds that payouts exceeding 65% effectively amount to nearly 100% on a risk-adjusted basis, reinforcing why a higher payout is unlikely.
UBS has pushed back the timing of share buyback announcements to full-year results, slightly lowering earnings forecasts for 2026 and 2027.
Despite this, the Swiss bank remains positive on Prudential’s balance of shareholder returns and prudent capital management, supporting its Buy rating and 1,200p price target.
The shares were flat at 922.2p.