The Legal & General (LSE: LGEN) dividend looks irresistible and although I hold the stock, I wish I’d bought even more of it. I’ve subsequently taken bigger stakes in two other top FTSE 100 income stocks, Lloyds Banking Group and Unilever. Now I want to go equally big on L&G too.
The insurer and fund manager is one of the most attractive UK income stocks of all, and it looks like its generous policy of shareholder payouts is set to continue.
It’s a top income stock
In the 2022 financial year, Legal & General rewarded investors by increasing its dividend per share by 5% to 19.37p. The yield was 8%, covered precisely twice by earnings. Which strikes me as very solid. And things look set to get even better.
Its current financial year runs to 31 December, during which time consensus forecasts suggest Legal & General’s shares will yield income of 8.55%. Cover is set to fall slightly to 1.6 times earnings, but that still looks reasonable. In 2024, its dividend income should grow yet again, delivering an expected yield of 8.97% in 2024.
An investor who bought £10,000 worth of Legal & General shares at the start of 2022 could have £12,775 three years later at the end of 2024 (if the projections are correct, that is), from compounding dividends alone. Any share price growth would come on top – although the opposite applies and if the share price falls, then the total return would of course be lower.
Taking a long-term view
This nicely demonstrates how dividend wealth multiplies over time. And this is just a three-year period. I bought L&G with a view to hold for a minimum of 10 years, and ideally several decades, to give those dividends plenty of time to compound and grow.
There is a downside though. Lately, the company’s shares have gone nowhere. Over five years, they’ve fallen 12.88%, and they’re down 1.45% over one year too.
Nvidia, it ain’t. Yet I don’t think I’m buying into a value trap.
Last year’s operating profit jumped 12% to £2.52bn, beating expectations. It would have done better, but profits at its investment fund arm LGIM fell almost 20% to £340m. That doesn’t worry me too much, given that 2022 was a rotten year for stock markets. LGIM’s assets under management fell by a whopping £225bn. All the other asset managers suffered, too.
Investor sentiment towards the UK stock market is likely to remain negative for a while longer, at least until the Bank of England finally gets on top of inflation. That will hamper L&G’s recovery prospects even if the underlying business does continue to grow as it has done lately.
At some point the stock market will rally, and when it does, I believe Legal & General shares will rally with it. I’m willing to bide my time and keep reinvesting my dividends to pick up more stock, until that happy day arrives.
With a current valuation of just 6.1 times earnings, L&G is too cheap to resist. I’ll top up my stake as soon as my next free monthly trading credit hits my account. I want my full share of its next dividend.
