Lincoln National: High-Yield Dividend or Warning Sign?

The insurance sector has long been a bastion of steady dividends, but Lincoln National (LNC) is now testing the limits of investor patience—and greed. With an 8.42% dividend yield, 3.21 standard deviations above its historical average, the company presents a compelling yet precarious opportunity. Beneath the headline-grabbing yield lurks a payout ratio of -0.07—a statistical impossibility under normal circumstances—raising urgent questions about dividend sustainability. Is this a contrarian buying signal or a harbinger of cuts? Let’s dissect the data.

The Math That Doesn’t Add Up
A negative payout ratio (-0.07) typically signals a company’s net loss exceeds dividend payouts. For Q1 2025, Lincoln reported a net loss of $756 million, driven by non-operational headwinds like declining interest rates and equity markets. Yet, the company maintains its $0.45 quarterly dividend, supported by $34 million in preferred stock dividends. However, common stockholders face a stark reality: the dividend isn’t covered by adjusted operating income of $280 million, let alone the net loss.

The disconnect between headline losses and operational metrics is critical. Adjusted operating income—a measure excluding volatile items like market risk benefits—rose 33% YoY to $280 million. This suggests the core business is stabilizing, but investors must ask: How long can LNC bridge the gap between adjusted performance and reported losses to sustain dividends?

Institutional Flight vs. Analyst Optimism
While the dividend yield soars, institutional ownership has retreated, dropping 5.74% over the past quarter. This exodus isn’t uncommon in high-yield situations; institutions often exit when payout ratios strain credibility. Yet, analysts remain bullish, with a 25.88% upside target based on improving segment performance.

The Annuities division, for instance, saw a 33% sales surge to $3.8 billion, buoyed by spread-based products. Meanwhile, the Group Protection segment’s 26% operating income growth and the Bain Capital partnership—a minority stake aimed at unlocking private asset value—hint at strategic momentum.

The Contrarian’s Dilemma
The 8.42% yield is a siren song for income investors, but it’s built on shaky ground. The company’s reliance on preferred dividends and adjusted metrics to sustain payouts creates a high-risk, high-reward scenario. If LNC can convert operational improvements into sustained net income, the dividend could stabilize. However, macroeconomic pressures—like further interest rate declines or equity market volatility—could worsen the net loss, forcing a cut.

The Bain Capital tie-up adds a wildcard. While the partnership aims to boost private asset returns, its success hinges on market conditions and execution. If realized, it could bolster book value (currently $73.19 per share) and provide a cushion for dividends.

Act Now—or Wait It Out?
This is a binary bet. If you believe LNC’s operational turnaround will eclipse non-operational headwinds—and that institutional skepticism is overblown—the 8.42% yield offers a asymmetric reward. The adjusted book value’s 1% quarterly increase and segment resilience suggest management isn’t idle.

But if you view the negative payout ratio as a canary in the coal mine, now is the time to sell. The exodus of institutions, while not definitive, signals professional money is cautious.

Final Call
Lincoln National is a high-stakes gamble. The dividend’s sustainability hinges on whether adjusted operational gains can permanently offset the non-operational drag. For aggressive income investors with a long-term horizon, the 8.42% yield and 25.88% analyst target present a compelling contrarian opportunity. But tread carefully: a dividend cut would likely crater the stock. For others, this is a “wait-and-see” situation—until LNC’s net income turns positive, the red flags remain raised.

Invest wisely.