Last year I bought two FTSE 100 income stocks that offered me stellar yields and the prospect for capital growth as well.
So far, I’ve bagged a fair amount of dividends. That’s hardly surprising, because they both yield around 9%, among the most generous rates of income on the FTSE 100. But I haven’t bagged much share price growth.
The two stocks in question are insurer and asset manager Legal & General Group (LSE: LGEN) and fund manager M&G (LSE: MNG).
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Legal & General Group is short on growth
There’s a good deal of crossover between the two. Both are in the financial sector and sell a huge range of investment funds to investors. The most notable difference is that Legal & General also offers general insurance, life assurance, equity release, and other financial products.
Performance wise, they’re in lockstep. The Legal & General share price has crept up just 0.67% over 12 months, while M&G isn’t much better, up 1.62%. Both trail the FTSE 100 as a whole, which grew a respectable 8.27% over the same period.
Some may question why I bought both shares, given their similarities. But it isn’t a given that they will perform the same way. Aviva is a very similar operation to Legal & General, but its shares have jumped an impressive 24.69% over one year. Legal & General and M&G have done badly for reasons peculiar to them.
Legal & General’s full-year 2023 operating profits came in flat at £1.67bn, while profit after tax fell 41.6% to £457m. The first quarter of 2024 wasn’t much better. Investors remain unimpressed. I get that.
M&G’s adjusted operating profits before tax actually jumped 27.5% to £797m. Yet the board was stingy, hiking the dividend by just a tenth of a penny to 19.1p per share, a barely-there increase of just 0.5%. Legal & General did better, increasing its dividend by a more respectable 5%.
Investing is a long-term game and I’m not too worried about Legal & General and M&G. Both look financially solid and pay me a blistering rate of income, yielding 8.98% and 9.45% respectively. They lift my total return to around 10%.
M&G will come good, too
Better still, I have reinvested my dividends straight back into the shares. This means that if and when they start to climb, I’ll be holding more of them. Purchased at today’s low price.
When central bankers start cutting interest rates, I think high-yielding dividend stocks like these two will look more attractive. Savers can still get around 5% on cash today, but that may not last much longer. When rates slide appreciably – and bond yields will also fall – then investors will start to appreciate the power of a higher yield.
Hopefully, that will renew interest in these two underperformers, and boost their share prices. Rising stock markets should help, by lifting net assets under management and attracting new customer inflows.
Legal & General and M&G can’t just hang around waiting for improved macro conditions. Their boards need to drive sustainable growth. Both have struggled to do so. They operate in competitive markets, and are probably never going to go gangbusters.
I don’t know when they will recover. Timing these things is hopeless. Luckily, I don’t have to. I’m fully invested so I’ll just leave my money there until things take off. One day, they’ll come good. In the meantime, I’ve got my income.
