The Legal & General (LSE: LGEN) share price has climbed 1.2% year to date and 7.3% in the last 12 months. That means it’s lagged the FTSE 100.
But at 251.6p, Legal & General looks like it could be one of the best buys on the Footsie. Let me explain why.
The perfect combination?
As an investor who targets value and income, surely it doesn’t get much better than Legal & General?
Let’s start with its valuation. Today, I can snap up its share trading on just 9.8 times forward earnings. That’s below the Footsie average of 11, highlighting the financial sector stalwart may be undervalued. That’s only reinforced when I compare that to its long-term historical average, which comes in at close to 15.
In my opinion, I think Legal & General shares look dirt cheap. But it gets better. In tandem with that, the stock boasts a whopping 8.1% dividend yield. On the FTSE 100, only four companies offer a higher payout.
Progressive policy
That said, a cheap share price and high yield isn’t always as good as it seems on the surface. Take Vodafone as an example.
Firstly, its 10% yield is set to be cut in half next year as the firm reduces its payout from 9 cents per share to 4.5. What’s more, while its share price looks like good value, I see too many issues with the business, such as the large amount of debt it has.
But with Legal & General, I don’t see this. Unlike Vodafone, it’s adopting a progressive dividend policy. In the last five years, it’s undertaken a cumulative dividend plan set to end this year. During that time, it’s on track to return nearly £6bn to shareholders via dividends. Looking forward, management wants to grow the dividend by 5% this year.
A rough spell
That being said, I’m fully aware of the risks that surround the business. Firstly, while it may feel like it, we’re not out of the woods yet with inflation. For April, UK inflation came in at 2.3%. While that’s close to the government’s 2% target, it was higher than analysts had predicted.
As such, I’d expect further volatility from the stock. Over the last few years, increasing interest rates have led to higher outflows. Last year, its operating profit fell to £274m from the £340m recorded in 2022.
In it for the long haul
I already own shares in Legal & General, but I’m planning on topping up my position in the near future, given its current share price.
My position so far is up 14.3%. And I’m in no rush when it comes to seeing gains. I’m not expecting its share price to put on a show anytime soon. Instead, I think the stock could be a slow burner.
Either way, I’m not complaining. While I slowly build out my position, I’ll be receiving its bulky yield. The passive income I receive will just go back into buying up more shares.
Each investor’s goals and preferences vary. But for me, Legal & General’s cheap share price and bulky yield may just be one of the best offerings on the Footsie.
