Legal & General (LSE:LGEN) stock tumbled following the Russian invasion of Ukraine. Having recovered slightly, the stock fell again in April and currently trades around 259p a share, that’s down from a year high of 309p a share. So, does this FTSE 100 giant look like a good addition to my portfolio?
Recent performance
Legal & General’s share price recovered after the invasion as the multinational financial services firm raised its dividend on the back of a 39% rise in annual pre-tax profits. Full-year pre-tax profit rose to £2.49bn, while profit after tax was up 28% to £2.05bn.
Earnings per share were 72% higher compared to 2020 at 34.19p, and 19% above 2019. Operating profits were 11% higher year-on-year at £2.25bn, consistent with the double-digit guidance provided in the first-half results. 2021 represented Legal & General’s most profitable year in the last five.
Chief executive Sir Nigel Wilson outlined that the firm was confident in delivering profitable growth owing to the rollout of the UK government’s levelling up programme and international business prospects.
The firm also highlighted that its exposure to sanctioned Russia was minimal. Total exposure to Russia is approximately 0.1% of assets under management, L&G said in an update.
Strong dividend
Buying today, I could expect a dividend yield of 7.3%. That’s impressive and would certainly help my portfolio overcome soaring inflation. Moreover, the dividend coverage ratio last year was 1.85, which isn’t bad. It certainly could be healthier but it doesn’t make me think the dividend is unsustainable.
In March, L&G declared a full-year dividend of 18.45p, up 5% on the year. Given that the dividend was only recently increased, I feel fairly confident that it’s not going to be cut any time soon.
Valuation
Currently the stock sits nearly 13% down on where it was three months ago, despite the positive performance data. Its price-to-earnings ratio (P/E) — which measures its current share price relative to its earnings per share (EPS) — stands at 7.37.
The recent volatility doesn’t make L&G look like the best stock for long-term share price growth. It’s currently up 2% over the past five years and down 9.8% over three years.
Future prospects
While I’m confident on long-term demand for financial services, particularly pensions and insurance products, there could be some short-term pain for L&G. Any company in the investment space might be expected to perform poorly amid the soaring inflation that we’re seeing now and should the economy take a turn for the worst. The economic outlook is rather uncertain this year and this could weigh further on the L&G share price.
Should I buy?
I think further economic troubles have already been factored into the L&G share price, but that doesn’t mean it can’t fall further. I already own Legal & General shares and I’m looking to buy more. Yes, it could fall further in the short term, but I think the long-term prospects are good.
