8.8% yield! Is the Legal & General share price a brilliant opportunity to make passive income?

This Fool thinks investors looking to generate passive income should consider Legal & General at its current share price. Here’s why.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young female business analyst looking at a graph chart while working from home

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Legal & General (LSE: LGEN) share price is currently 226.7p. That’s 8.8% lower than it was at the offset of the year. It’s 17.8% less than it was five years ago.

Created with Highcharts 11.4.3Legal & General Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

That doesn’t make great reading for long-term shareholders. Especially when you consider that the FTSE 100 has been on the rise this year. But for potential investors, or shareholders like me who are considering adding to their position, where does that leave us?

Based on its performance in recent times, Legal & General may seem like a stock that should be avoided. But there are positives to a falling share price.

Should you invest £1,000 in Centamin right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Centamin made the list?

See the 6 stocks

One of the best

One is a rising dividend yield. And as far as yields on the Footsie go, Legal & General’s one of the best. At a whopping 8.8%, that places it as the fifth highest on the index.

It’s only topped by Vodafone, Phoenix Group Holdings, British American Tobacco, and M&G. Vodafone is cutting its yield in half next year, which makes Legal & General’s yield look even more impressive.

Sustainability

But what’s the point of a high yield if there’s not the potential of it being sustained, or hopefully rising, in the times to come? Dividends are never, ever guaranteed, so doing proper due diligence and investigating whether a yield looks sustainable is key.

Luckily, with Legal & General, I reckon it is. Its yield has been on a steady rise over the last decade. Its cumulative dividend plan, set to end this year, is further proof that its management is placing emphasis on rewarding shareholders.

Valuation

Its falling share price also means a more attractive valuation. Today, Legal & General trades on a forward price-to-earnings (P/E) ratio of 8.6. That’s below the Footsie average (11). Taking a look at its industry peers, it’s also cheaper than Aviva, which trades on a forward P/E of 11.7, as well as AIG, which trades on 10.7.

Not without risks

Its cheap valuation comes with risks. For example, the stock’s cyclical. Its performance can often go through peaks and troughs as the economy goes through ups and downs. We’re dealing with lots of economic uncertainty at the moment, hence its cheaper price.

Unfortunately, I’m expecting this downward trajectory to continue in the months ahead. And that’s going to have a direct impact on Legal & General. Its assets under management will most likely continue to wobble.

I’m bullish

But looking past that, I’m bullish on the firm’s longer-term performance. The business has strong brand recognition and a large customer base in a growing industry. It has also recently laid out plans to boost its efficiency. Those are all things I love to see.

An opportunity

I think Legal & General offers a great opportunity to make passive income. At its current value, I also see lots of potential for share price growth in the years to come. I started to snap up shares in July last year. As I write, I’m sitting on a 4.8% paper gain.

But I’m in it for the long haul. And the opportunity to make extra income is one of the main reasons I’ll continue to buy shares with any spare cash I have. I reckon investors should consider buying it too.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Centamin right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Centamin made the list?

See the 6 stocks

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 British American Tobacco P.l.c. and Legal & General Group Plc. The Motley Fool UK has recommended British American Tobacco P.l.c., M&g Plc, and Vodafone Group Public. 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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

Could Tesla’s share price jump over the next 12 months? These analysts think so!

Tesla's share price has fallen by almost a third since 1 January. But optimism is high that Elon Musk's company…

Read more »

Investing Articles

I asked ChatGPT where the FTSE 100 will be in 6 months: here’s what it said…

Let’s be realistic, ChatGPT can’t predict the future. But it did do a good job of compiling data from brokerages…

Read more »

Investing Articles

Could the Rolls-Royce share price hit £10?

The Rolls-Royce share price has taken most analysts by surprise with almost everything going right for the British engineering giant.

Read more »

Investing Articles

4 REITs Fools own for passive income

REITs often have higher-than-average dividend yields compared to other stocks, making them a solid choice to consider for passive income…

Read more »

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »