This FTSE 100 dividend stock still looks a bargain to me

Searching for reliable income? This FTSE 100 (LON:INDEXFTSE:UKX) stock ticks all the boxes, according to this Fool.

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Thanks to its long-running tendency of showering owners with cash, asset manager Legal & General (LSE: LGEN) has been a firm FTSE 100 favourite among the Fool UK team for quite some time.

Today’s interim results look unlikely to change that, particularly as the shares continue to look far too cheap.

Decent interims

Collectively, Legal’s five businesses generated an 11% rise in operating profit to a little over £1bn over the first six months of its financial year with the company also posting a record £7bn of global annuity sales.

The latter was so high thanks to the near £6.7bn in Pension Risk Transfer sales, which included the UK’s largest bulk annuity deal with Rolls-Royce, secured back in June. Individual annuity sales also jumped 47% to a little under £500m. 

Total assets under management at Legal came to £1,135bn at the end of the period — a rise of 15% on the figure recorded in H1 2018. The company reported external net flows of £60.3bn to its investment management business (an increase of roughly 300%). The gross written premium at its Insurance arm also increased 7% to £1.41bn.

All told, post-tax profit and earnings per share came in at £874m and 14.74p respectively — both 13% more than this time last year. 

CEO Nigel Wilson was unsurprisingly bullish, stating that the opportunity available to the company in retirement-related solutions is “immense and expected to continue”. Recent disposals, including the sale of its General Insurance business to Allianz, allows Legal to focus on its market-leading businesses as well as other areas which it regards as having “outstanding growth potential”, he said.

In contrast to rather downbeat comments from other firms over the last few weeks, Mr Wilson added that trading in H2 had “started well” and that the company was “well-prepared for the full range of foreseeable Brexit outcomes”.

Despite this, financially-sound and globally-diversified Legal’s shares were down in early trading. For those with long investing horizons, I think this represents a good opportunity to climb on board.

Cheap income

Legal & General’s average price-to-earnings (P/E) ratio over the last five years is a little short of 13. Before markets opened this morning, LGEN was trading on a P/E of just 7, suggesting the company’s stock, like that of peers Aviva and Prudential, offers considerable value at the moment.

Aside from its bargain valuation (and as mentioned earlier), the £15bn cap continues to look like a great pick for those wishing to generate income from their portfolios.

Today’s interim dividend of 4.93p per share was a 7.2% hike on that returned to shareholders last year. Assuming analysts are correct in their prediction of a 17.6p per share total dividend in 2019, Legal and General’s shares yield 7.2% at the current share price.

Ordinarily, such a high percentage would be a potential red flag. After all, this is far more than the 4.3% median across the FTSE 100. 

In sharp contrast to other high-paying members of the index, however, this year’s payout is likely to be covered 1.8 times by profits. This means that the chance of the company needing to cut its cash returns in the near term is low. 

It might not quicken the pulse like a fast-growing tech stock, but for those looking for a cheap and stable dividend-payer to hold in times of strife, I think Legal & General continues to warrant attention.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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