Here’s why I think the Legal & General share price is one of the biggest bargains on the FTSE

With a bulky yield and cheap valuation, this Fool thinks the Legal & General share price looks like one of the best steals on the FTSE.

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I’ve been perusing the FTSE 100 and FTSE 250, and with a share price of 252.2p, Legal & General (LSE: LGEN) stands out to me.

Both indexes have rallied this year, however, it seems like the asset management stalwart has missed out on these gains. Year to date, it has risen just 1.5%.

But I don’t view that as an issue. In fact, I see it as an opportunity to snap up some undervalued shares. If I didn’t already own some of its shares, I’d rush to buy them. I think investors should consider buying the stock today.

Valuation

There are multiple reasons why I’m bullish on Legal & General today. One is its valuation. There are a few ways I can measure this, but I want to focus on its price-to-earnings (P/E) ratio.

Its forward P/E is 9.8. That’s below its long-term historical average of around 15 as well as the Footsie average of 11. That signals to me that there’s value in the stock today.

Passive income

Alongside its cheap valuation, there’s also another massive draw: its 8.1% dividend yield. That’s way above the average of its Footsie peers (3.9%). What’s also impressive is that in the last decade, its payout has risen by over 80%.

What I like to see is that the business has committed to returning more value to shareholders lately. We’ve seen this with its cumulative dividend plan, which comes to an end this year.

Management intends to grow the yield by 5% for the current year. That puts its forward yield at a whopping 8.7%.

My type of buy

When I’m researching which stocks to add to my portfolio, there are certain criteria I look for.

The first is a track record of a rising dividend, which Legal & General clearly has. The next is a strong balance sheet. With a Solvency II ratio of 224% for 2023, an 8% jump from 2022, Legal & General also ticks that box.

A strong balance sheet allows it to focus on investing for future growth. As such, analysts predict the firm to grow earnings at a rate of 22.9% a year to the end of 2026.

The risks

That said, the business has faced several issues in the last few years due to the current economic environment.

Raging inflation and elevated interest rates, and the uncertainty they’ve sparked, have seen the Legal & General share price suffer at times over the past couple of years.

In recent times, operating profit has taken a hit. On top of that, the business has seen its assets under management wobble as investors pull their money from funds. We’re not out of the woods yet, so I’d expect further volatility going forward.

A steal?

But at its current price, I think Legal & General could be a shrewd buy for long-term investors and it looks like one of the best bargains on the FTSE, in my opinion.

While I’d expect some more instability this year and next, I think in the long run the stock has plenty of growing room to return handsome gains to shareholders.

I’ll be holding on to my shares and with the passive income I receive from its meaty yield, I’ll simply reinvest it back into buying more undervalued shares.

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.

Charlie Keough has positions in Legal & General Group 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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