“Dear Santa,
“I hope you’ve had a great 12 months earning enough passive income from your share portfolio to pay for all the presents that people want this year. As I’m sure you know, I’ve been very good. I tidy my room every day and help my mummy and daddy whenever I can.
“You’ll be pleased to learn that my 2024 wish list is very short. You and Rudolph shouldn’t have any problems delivering what I want. As usual, I’ll leave my stocking in the living room. Hopefully, you won’t get stuck in the chimney this year. I know you suffer badly from Claus-trophobia!
My top wish
“I don’t want to be too greedy but it’d be great if you could get me some Legal & General (LSE:LGEN) shares this year. I’m sure you’ve heard of the company. It’s been around since 1836 and offers retirement and insurance products, mainly to UK customers.
“I know you don’t have a pension plan because you are too focused on the present(!), but as the State retirement age continues to rise, I suspect younger people will be looking to the private sector to help boost their savings. I know I’m going to do this when I grow up.
“As an income investor, I’m particularly keen on the stock’s generous dividend. For its 2024 financial year, it’s promised to pay 21.36p a share. That’s a 5% increase on 2023 and implies a current (13 December) yield of 9.2%. By my calculations, this is the third highest on the FTSE 100.
“I know dividends are never guaranteed but the company has stated its ambition to increase its payout by 2% a year from 2025-2027.
“If all goes to plan, this’ll be supported primarily by growth in its pension risk transfer business. It has an active pipeline of £24bn of retirement schemes that it’s looking to acquire. Based on its 2023 return on equity of 9.7%, these could generate additional profits of £2.33bn a year. For context, its adjusted operating profit in 2023 was £1.67bn.
“Legal & General also has a strong balance sheet — it has over twice the reserves that it’s legally obliged to have. And its shares look attractively priced to me, so you should have plenty of money left over to buy the presents that other people want. Its current price-to-earnings ratio of around eight is comfortably below that of the FTSE 100 as a whole.
Some risks
“Some of your elves might not approve of the stock. At 31 December 2023, it had £186bn of equities on its balance sheet, as well as £8.9bn of investment properties. It’s therefore vulnerable to a downturn in the stock market and a struggling housing market.
“Competition is also fierce in the sector, which could explain why its funds under management fell during the first six months of 2024. This is something that I promise to closely monitor.
“However, on balance, I think the company’s well placed to grow over the coming years and maintain its generous dividend.
“If you are unable to buy Legal & General shares then I’ll have to save my pocket money and see if I can afford them early in 2025. Until then, I’m going to keep the stock on my watchlist.
“Happy Christmas, Santa!
“Lots of love,
“James”
