At first glance, Legal & General (LSE: LGEN) shares don’t appear to offer much in the way of excitement.
They’ve fallen 4.41% over the last year and, even more crushingly, have slumped 20.85% over five years. Having bought them 18 months ago, I’m not exactly thrilled. Yet I haven’t for a moment considered selling up.
Like a lot of FTSE 100 financial stocks, the Legal & General share price has taken a beating in recent years. Given that we’ve been through the pandemic, cost-of-living crisis and a lot more besides, that’s hardly surprising.
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This FTSE 100 stock is available at a discount
It started 2024 in better shape, amid widespread hopes that interest rates would fall, making high-yielding stocks like this one even more tempting.
But with rates expected to stay higher for longer and pre-Budget uncertainty turning into post-Budget gloom, L&G shares are going the wrong way.
While I’d prefer shares in my portfolio to rise in value, I don’t worry overly if they dip. Especially when they offer as generous a passive income stream as Legal & General does. It’s not just high, but set to rise too.
In 2023, the board paid a dividend per share of 20.34. It’s expected to increase that to 21.3p this year, a rise of 5.16%.
The shares are forecast to yield a staggering 9.73% in 2024. Next year, analysts reckon that will hit 9.97%.
This is one of the highest yields on the FTSE 100 and although dividend growth may slow that’s not a huge problem given the high base. Even if the L&G share price doesn’t grow at all, I’ll still double my money in less than eight years if the yield holds.
Following the recent dip, the shares look good value trading at 12 times earnings. That’s slightly cheaper than today’s FTSE 100 average of 14.1 times.
One of the most generous dividend yields around
When deciding whether a stock’s good value, I also like to check out the price-to-sales (P/S) ratio. That shows how much I’d have to pay for each £1 of sales a company makes. In the case of L&G, the forecast P/S is 0.8. That means I only have to pay 80p. Which isn’t too shabby.
That number is helped by the fact that sales are expected to rise by 5.1% in 2025, from £13.47bn this year to £14.16bn.
L&G employs around 11,000 staff in the UK, so National Insurance and minimum wage hikes announced in the Budget will squeeze L&G’s margins from April 2025.
As an asset manager, L&G tends to do better when markets are flying. While the ‘Trump trade’ is still alive in the US, it hasn’t crossed the Atlantic. Threatened tariffs don’t help. With the UK economy slowing, domestic earnings from general insurance, protection, pensions and investment funds may also be squeezed. The UK stock market’s a bit glum right now, but I’m hoping the mood will pick up in the run-up to Christmas.
I already have a big holding in L&G, so won’t buy more. Otherwise I’d snap it up at today’s bargain price of 80p in the pound.
