September has been a month of ups and downs for investors. As I write, the UK’s main market index is down roughly 70 points (1.16%) this month. However, as you’d expect, many shares within the FTSE 100 have performed much worse than the wider index since the Summer Bank Holiday.
This FTSE 100 share has crashed in September
Earlier today, I had a good poke around in the FTSE 100’s bargain bin, looking for fallen shares in otherwise excellent companies. Among the worst performers in September, notably shares in airlines and aviation-related businesses, I found a real gem.
This ‘diamond in the rough’ is a top-notch company whose shares have been unfairly downgraded by the market, in my humble opinion. This excellent business with a depressed share price is Legal & General (LSE: LGEN).
Here’s why this FTSE 100 champion is a great buy
Having worked in the insurance industry for 15 years until 2002, I know how extremely lucrative and reliable writing insurance policies can be. Indeed, legendary billionaire Warren Buffett built a $500bn empire by reinvesting the steady returns from various insurers he acquired.
Here are five reasons why I would buy this FTSE 100 share today:
1. It’s a widely respected household name
Legal & General has been a leader in British insurance and investment since 1836, so it has a 184-year pedigree. And, in a market as competitive as insurance, having a good name is worth its weight in gold.
2. L&G has over 10 million customers
L&G isn’t just a UK insurer – it supports more than 10m customers worldwide, managing more than £1trn in assets. Obviously, being a leading life assurer in a global pandemic is far from ideal. However, this FTSE 100 stalwart’s latest results revealed losses from Covid-19 that were easily absorbed.
3. L&G shares are among the cheapest in the FTSE 100
Thanks to recent falls, L&G shares have rarely been so cheaply rated. At today’s 189.6p, they trade on a price-to-earnings ratio of roughly 6.7. This translates into an whopping earnings yield of 14.9% a year. Among City veterans, this 7/14 ratio is considered the Holy Grail of value investing.
4. L&G pays one of the FTSE 100’s juiciest dividends
Despite the coronavirus crisis, L&G shares have paid out fat cash dividends in 2020. Shareholders received 12.64p on 23 April, followed by 4.93p on 13 August. These two payouts total 17.57p, which translates into a historic dividend yield of 9.27%. For me, this is a mouth-watering income stream to bank long into the future.
5. This FTSE 100 firm has a rock-solid balance sheet
Safety-first investors will be pleased to learn that L&G has an incredibly solid, almost bomb-proof, balance sheet. The company’s ‘Solvency II coverage ratio’ – a measure of financial security for insurers has actually climbed to 173% (from 171% last year).
To sum up, L&G is a great business which offers the ‘Holy Trinity’ of financial strength, a high and well-covered dividend, and lowly rated shares. I’d buy this FTSE 100 share today and hold it forever for its bumper cash returns to shareholders!
