The Legal & General (LSE:LGEN) share price hasn’t performed terrifically throughout 2024. In fact, since January, the stock’s down almost 10%. However, despite the trajectory of the stock price, dividends have remained intact. As such, investors can now snatch up an impressive 9.3% yield.
The question is, can this payout be sustained? And will the insurance giant see its valuation move back in the right direction throughout 2025? Here’s what the experts are saying.
Forecasts look bullish
Of the 17 institutional analysts tracking this enterprise, around half have a positive outlook for the business, with the other half largely being on the fence with a Hold recommendation. However, a conclusion that appears consistent across all analysts is that this stock’s currently cheap.
The most pessimistic Legal & General share price forecasts suggest the stock could fall to 220p over the next 12 months. Considering the shares are currently trading at around 224p, Legal & General seems to be sitting at the bottom of current predictions, seemingly indicating minimal downside risk.
As for the most optimistic predictions, the highest price projected right now is 335p, or a +50% potential gain. And the average consensus currently sits at 250p, or +12%.
Forecasts always need to be taken with a pinch of salt. After all, they’re rarely accurate. But they’re still a useful tool for judging overall sentiment surrounding a business. Right now, the sentiment for Legal & General seems to be pretty positive.
But what’s behind this? And what could go wrong?
Risk versus reward
Legal & General’s recent performance has left a lot of shareholders wanting. While its latest results were better than expected, the firm’s operating profit still only grew marginally year-on-year. And its assets under management are still under pressure, shrinking by 3% to around £1.14bn back in August.
Pairing that with increased pressure being applied to the balance sheet by debt, Legal & General’s in a bit of a tough spot. Having said that, the group’s £5bn pipeline of pension risk transfers does suggest better times ahead. And with the financial markets also rallying behind improved British economics and lower interest rates, a new tailwind seems to be building for this business.
Excluding the pandemic, management’s hiked dividends every year since 2009. And there’s a good chance it will want to maintain this growth streak moving forward. In other words, today’s yield might be set to continue growing, especially if the firm’s earnings improve from the suspected tailwinds of a rebounding economy.
However, this is far from guaranteed. And with dividends already exceeding the firm’s operating cash flows management’s dipping into its cash reserves. Admittedly, these are fairly substantial. But it’s not a strategy that can be sustained over the long run. And if conditions continue to be sluggish, Legal & General may have no choice but to cut shareholder payouts.
Personally, I think there are healthier dividend opportunities out there. So this isn’t a stock I’m looking to add to my portfolio today.
