There are loads of great income shares on the FTSE 100 right now, but one dividend stock jumps out at me. This household name blue-chip combines a blockbuster yield with a dirt-cheap valuation, and the risks seem relatively limited too.
I’m talking about insurer, pension manager and tracker fund specialist Legal & General Group (LSE: LGEN). It was one of the first stocks I bought after transferring three legacy pensions into a self-invested personal pension plan (SIPP) in May and now I want to buy more.
After a bright start L&G shares have slid along with the rest of the FTSE 100. So far I’m down 4.22% but that’s neither here nor there. I plan to hold the stock for a decade at least, and ideally longer, giving it plenty of time to come good.
I’m now ready to buy more
The big attraction is the dividend. L&G shares are forecast to yield a bumper 9.31% in 2023, and 9.78% in 2024. At that rate I’d double my money in around eight years, even if the share price didn’t move at all.
Over such a lengthy period, I would expect share price growth on top. However, I’m the first to acknowledge that L&G hasn’t done that so well in that department lately. The share price is down 14.28% over five years and 19.25% in the last 12 months.
It’s trading at similar levels to a decade ago with a rock-bottom valuation of just 5.7 times earnings. It looks like an unmissable time to buy it.
L&G is still making money having just reported first-half operating profits of £941m. That’s down from last year’s £958m but its Solvency II coverage ratio climbed from 212% to a rock solid 230%, with surplus funds of £9.2bn.
This is my chance
The board hiked the interim dividend to 5.71p in line with its strategy of delivering 5% annual dividend growth until 2024. Shareholder payouts have grown steadily for the last decade (aside from a freeze in 2020 due to the pandemic). As my table shows, the growth looks set to continue.
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023* | 2024* | 2025* | |
| Dividend per share | 16.42p | 17.57p | 17.57p | 18.45p | 19.37p | 20.33p | 21.35p | 22.51p |
Last year’s stock market volatility hit both profits and assets under management at L&G’s investment arm LGIM. Things have stabilised so far in 2023 but that may change. Given its exposure to the stock market’s fortunes, L&G will be on the frontline if markets crash as many now fear. No crash lasts forever and I’d take advantage of any share price dip to average down on my stake.
As a diversified financial services company, L&G has some ballast due to rising annuity sales and progress in the US protection and pension risk transfer market.
L&G goes ex-dividend on 24 August. I’d like to top up my stake before then to enjoy a bumper payment on 26 September. This is a brilliant chance of locking into a yield of almost 10% a year that really looks like it might be sustainable. No dividend is guaranteed – nothing is when it comes to investing – but L&G’s looks more reliable than most.
