Why Legal & General Group Plc Should Be A Candidate For Your 2014 ISA

Legal & General Group Plc (LON: LGEN) is one of the best insurers out there.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

_ISA2The insurance sector has had a few tough years of recession, but when it comes to investing in an ISA for the long term, such cyclical trifles tend to turn out as mere ripples in a long upward trend.

A 50% rise!

But with its share price up more then 50% over the past 12 months already, to 238p, is Legal & General Group (LSE: LGEN) (NASDAQOTH: LGGNY.US) a good choice for some of the new £11,760 allowance coming in April? Or, indeed, for anything unused from this year?

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Let’s take a look at the firm’s track record first:

Dec EPS Change P/E Dividend Change Yield Cover
2008 -17.88p n/a n/a 4.06p 5.3%  n/a
2009 14.82p n/a 5.4 3.84p -4.0% 4.8%  3.9x
2010 14.07p -5% 6.9 4.75p +24% 4.9%  3.0x
2011 12.42p -12% 8.3 6.40p +35% 6.2% 1.9x
2012 13.90p +12% 10.5 7.65p +20% 5.3% 1.8x
2013* 15.79p +14% 15.2 9.24p +21% 3.9% 1.7x
2014* 17.11p +8% 14.0 10.57p +14% 4.4% 1.6x
2015* 18.55p +8% 13.0 11.77p +11% 4.9% 1.6x

* forecast

So a rocky few years, but even though the share price has been rising since Legal & General’s earnings recovery started in 2012, it’s still on a reasonable price to earnings ratio (P/E) of 14-15 — the FTSE forward average stands at about 17 right now.

2013 results soon

Full-year results for 2013 should be with us on 5 March, and things sounded pretty positive at the half-way stage — with double-digit rises in operational cash generation and pre-tax profit. And there was a 22% rise in the interim dividend, setting the scene nicely for the expected full-year rise.

Dividends are the key for a successful long-term investment in the insurance sector, and Legal & General’s have been way outstripping inflation over the past few years. But we do need to sound a note of caution here, too — dividend rises that are ahead of earnings growth will stretch the cover, and we really don’t want to see Legal & General having to slash its dividend the way some others did when they overstretched things.

Leveling off

I can’t see dividend cover coming down much below that 1.6 times, so dividend growth is pretty certain to slow over the next few years — but if it just keeps pace with earnings, it will keep on filling up those ISAs very nicely.

I also don’t see the share price repeating its recent rapid rise in the near future. But if we should get 5% per year over the next 20 years and, say, an average dividend yield of 4.5%, we’d see a £1,000 ISA investment in Legal & General turning into more than £6,000 — and that’s more than four times what you’d get in a cash ISA at today’s interest rates.

So yes, I think you’d do well to consider Legal & General for a slice of that ISA cash — though I bet you wish you stashed some in 2009’s ISA when the P/E was down around five!

More on Investing Articles

Female Doctor In White Coat Having Meeting With Woman Patient In Office
Investing Articles

Here’s why the Renalytix share price is tanking

The Renalytix share price has lost almost 90% of its value in one year. Our writer is a shareholder --…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Could I make big buck with cheap Aston Martin shares?

Aston Martin shares plunged nearly 10% on Thursday morning amid rumours of another capital raise. But, maybe now is a…

Read more »

Risk reward ratio / risk management concept
Investing Articles

A top penny stock to buy in July

Penny stocks can carry higher risk for investors than larger companies. However, here is one low-cost UK share I think…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

Why 2022 could turn out a great year for buying growth shares

The appetite for growth shares appears to have waned in 2022, as the US Nasdaq has hit a bear market.…

Read more »

Piggy bank group pastel color background
Investing Articles

Should I buy PayPal stock in July?

The PayPal share price has fallen quite a long way from its all-time high. So, could July present a buying…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

2 great FTSE 100 stocks to own heading into a recession

Jabran Khan identifies two FTSE 100 stocks he feels are recession-proof and details their defensive capabilities.

Read more »

Young black woman in a wheelchair working online from home
Investing Articles

The Lloyds share price is down. Where will it go next?

In this article, this Fool looks at where the Lloyds share price could be heading, and whether it can return…

Read more »

positive mental health woman
Investing Articles

Waiting for a stock market recovery? I’m not

I'm not in a hurry for a stock market recovery. In fact, I think market volatility can be good for…

Read more »