I hold some growth stocks in my portfolio, but the majority are FTSE 100 dividend-paying blue-chips that should pay me a high and rising passive income for years.
I reckon their share prices will climb too, given time, so with luck I’ll get both income and growth. That sounds like twice the fun to me.
One of my favourites is insurer and asset manager Legal & General Group (LSE: LGEN). Yet I’m the first to admit its share price performance has been disappointing lately.
What’s up with the share price?
After a bright start to 2024, the Legal & General share price has slumped 10% over the last six months. It hasn’t issued any particularly bad news in that time, although it hasn’t been particularly exciting either.
On 7 August, it posted an operating profit of £849m. That was only a modest increase of 1% on last year but beat analyst forecasts of £834m. The board forecast that 2024 core operating earnings would grow by mid-single-digits.
On the downside, profit after tax fell sharply from £377m to £223m, while assets under management shrank slightly to £1.17trn. Like a lot of FTSE 100 financial companies, Legal & General been hit by economic uncertainty and volatile stock markets. Its shares are down 2.64% over 12 months and 24.7% over three years.
A key reason is that hopes of aggressive interest rate cuts have been dashed as inflation proves sticky. This gives investors a higher yield from cash and bonds, without putting their capital at risk by investing in shares.
Personally, I don’t see the point of getting 4% or so when Legal & General has a trailing yield of 9.18%. As a long-term investor, I can withstand short-term share price volatility.
One day, the growth will come
That’s especially so given that I think L&G’s dividend is sustainable. In August, the board lifted its interim dividend by 5%. Future growth may slow to around 2%, but given the high starting point, that doesn’t worry me too much.
Analysts forecast the L&G yield will hit 9.62% in 2024 and 9.85% in 2025. At that rate I’ll double my money in less than eight years, even if the share price doesn’t move up (and hopefully it won’t move down, which could happen). I’m planning to hold Legal & General for years and ideally decades. At some point, I reckon its shares will kick on, giving me growth on top of income. Most likely when interest rates finally fall.
I’ve no idea when that will be. Budget tax hikes appear to have knocked the wind out of the UK economy.
Another thing worries me. Legal & General’s annuity sales have more than doubled to £1.2bn as higher interest rates boosted returns on the fixed income pension product. My concern is that annuity sales will reverse when interest rates head south. That could take some of the steam out of its recovery.
Despite that, I’ll keep holding my shares to benefit from the brilliant second income stream. If I get any growth, I’ll treat that as a bonus.
