Legal & General shares have plunged 18% but yield 9.22%! Bargain buy or value trap?

Harvey Jones has been disappointed by the performance of his Legal & General shares. But does the FTSE 100 insurer’s sky-high dividend yield make up for it?

| 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.

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 having a shocker after falling 18.25% over the last five years.

To be fair, it’s in positive territory over the last 12 months, climbing 6.68%, but it’s been sliding again in recent months. The plus side is that it offers one of the most dazzling dividends on the blue-chip index, with a trailing yield of 9.22%.

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

So does that sky-high yield cancel out a poor stock performance? A back-of-a-fag-packet calculation suggests long-term investors will still be up around 25% over that period, so arguably it does. It’s not brilliant though.

Should you invest £1,000 in British American Tobacco 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 British American Tobacco made the list?

See the 6 stocks

FTSE 100 dividend income hero

Normally when a yield heads towards double digits, investors fret over whether the dividend’s sustainable. In this case, I’m not too worried. Legal & General has a solid track record of dividend increases, as this chart shows.


Chart by TradingView

Growth is set to slow though. The board hiked the dividend by 5% to 6p a share for 2024, but this will be followed by more modest annual growth of 2% thereafter. I find it hard to complain given the high income stream.

The board also announced a £200m share buyback, which is pretty modest but at leasts suggests that L&G isn’t bereft of cash. It’s planning more.

On 7 August, Legal & General posted first-half profits of £849m. While they rose just 1%, that beat analyst forecasts of £834m. It expects 2024 core operating earnings to grow by mid-single digits.

One thing worries me. That increase was driven by annuity sales, which more than doubled to £1.2bn as higher interest rates boosted the income they pay. Demand has spiked as pensioners anticipate falling interest rates, but is likely to decline soon.

The bulk annuity market should help drive earnings in future though, as more companies pass on their pension scheme obligations. Competition’s tough though, as rival insurers are also vying for the business.

This stock isn’t dirt cheap

Most of the big FTSE insurers and asset managers are in a similar position to Legal & General. While their shares struggle, yields are heading to 9% and beyond. Abrdn, M&G and Phoenix Group Holdings spring to mind.

What they all need is a good old-fashioned bull market run. Don’t we all? We’ve had one in US tech, but we could do with a broader, deeper stock recovery.

If interest rates fall, so will savings rates and bond yields. That will make the sky-high yields on FTSE financials look even more attractive, persuading income seekers to take a bit more of a punt.

I’ve been saying that all year, but it hasn’t happened yet. When I bought L&G shares last year they were trading at a price-to-earnings ratio of around seven. As earnings stagnate, that’s shot up to 30 times. So it’s not as cheap as it was.

The 17 analysts offering one-year share price forecasts have set a median target of 261.1p, up 18.69% from today’s price. If correct, that would be brilliant, especially once added to the dividend.

I’ve no idea when the Legal & General share price will recover, or whether it will fall further. But while I wait, I’ll reinvest every dividend I receive. Ironically, the longer the recovery takes, the more shares I’ll hold when it finally happens. I’m in this for the long run.

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

Should you invest £1,000 in British American Tobacco 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 British American Tobacco 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.

Harvey Jones has positions in Legal & General Group Plc, M&g Plc, and Phoenix Group Plc. The Motley Fool UK has recommended M&g Plc. 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

£20K invested in Tesla stock last April is now worth…

Despite all the bad headlines lately, Tesla stock has put in a storming performance over a 12-month timeframe. Is this…

Read more »

Investing Articles

If a 40 year old invests £600 a month in a SIPP, here’s what they could have by retirement

With no retirement savings at 40, an investor could put £600 a month into a SIPP and grow its value…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Why hasn’t its 9.9% yield boosted the Phoenix share price?

Phoenix Group has a dividend close to double digits, but saw a weak share price performance in recent years. Christopher…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

With average 10% yields, these mid-cap FTSE shares could supercharge a passive income portfolio

Some of the best passive income gems can be found on the UK's smaller indexes like the FTSE 250 and…

Read more »

A coin being dropped into a piggy bank
Investing Articles

As the Barclays share price tanks 19% in 2 days, is this a great buying opportunity?

As a trade war sends the Barclays share price into a tailspin, Andrew Mackie steps back to look at the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Fundsmith Equity still a good choice for a Stocks and Shares ISA in 2025?

Many Britons hold the Fundsmith Equity fund in their Stocks and Shares ISAs. Is this still a good move? Edward…

Read more »

Investing Articles

Nvidia stock is down 24% this year. Time to buy the dip?

Christopher Ruane has been eyeing Nvidia stock as a potential addition to his portfolio for a while. Is a recent…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »