With an 8.6% dividend, is the Legal & General share price set for a 2024 surge?

The Legal & General share price is down in 2023, along with its insurance peers. But the underlying business looks healthy to me.

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When I look at the Legal & General Group (LSE: LGEN) share price and see how it’s fallen in the past year, I have to think it’s too low.

A share price fall alone doesn’t mean a stock is cheap. No, they often slump for very good reasons.

But when the fall has helped push the dividend yield as high as 8.6%, It makes me sit up and take notice. And now we have news that suggests business is going well.

Pension buy-in

On 24 November, Legal & General announced what it says is the “UK’s largest single buy-in by premium size“, and “for L&G, the largest single transaction by number of members“.

We’re talking about the Boots pension scheme here, as the insurance firm has agreed a £4.8bn full buy-in with the health & beauty retail giant.

In total, L&G has now written £13.4bn of Pension Risk Transfer (PRT) so far in 2023.

Who says the insurance business is having a tough time this year? Judging by the Legal & General share price, most of the big investment firms, I guess.

Good forecasts

Broker forecasts are a lot more bullish than we might guess from the share price chart. The stock is on a price-to-earnings (P/E) of 13 for the current year. But if earnings grow as predicted, we should see that drop to about 8.5 in a couple of years.

The tipsters say the the dividend yield could rise as high as 10% by 2025 too.

That’s on the current share price, and it shows how buying when a stock is low can help us lock in better long-term dividend yields.

Bigger yields

By 2025, if these forecasts come true, I expect the L&G share price will have gained a bit. So the same dividend cash would provide a lower yield.

But those who take on the risk and buy today could secure that 10%. And that’s the kind of yield that can provide long-term riches.

For example, what might putting £100 a month in a stock paying 10% a year in dividends get me? Well, it could reach more than £70,000 in 20 years.

I really don’t see it staying at 10% for 20 years. But I think it shows the value of any cash we might invest now, while yields are so high.

Uncerainty

Forecasts are clouded with uncertainty right now. And I expect the whole financial sector — banks, insurers, investment firms — to stay wobbly until the economy gets closer to normal.

How long might that take? I’ve no idea, but I suspect longer than a lot of people think. Still, I rate the sector as a long-term cash cow. And I think the short-term risk is worth taking.

So will I buy Legal & General shares? Well, I already bought some Aviva shares a few years ago. And though the share price has gone nowhere, I’ve at least been getting some decent dividends.

But yes, L&G is high on my list for my next buy. Hmmm, unless I go for Phoenix Group Holdings, with its 10% forecast dividend.

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 assessed. Consider taking independent financial advice.

Alan Oscroft has positions in Aviva Plc. 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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