I bought Legal & General (LSE: LGEN) shares on three occasions in the summer of 2023 and had high hopes for them
The FTSE 100 insurer and asset manager traded at a dirt-cheap price-to-earnings (P/E) ratio of below seven and had a sky-high dividend yield of almost 8%.
It hadn’t delivered much share price growth but that didn’t worry me. Quite the reverse. I thought it may be due a growth spurt, and decided to get in before it arrived.
Not much growth
Unfortunately, it hasn’t. The Legal & General share price has fallen 3.5% over the past 12 months. Over two years, it’s down 3.5%.
Nothing has gone wrong particularly. Results have been pretty positive, with a share price jumping on the day. But every time, it trailed back.
So do I regret buying the stock? Nope. What Legal & General lacks in growth, it’s so far made up for in dividends.
Today’s trailing yield of 8.9% is one of the highest on the entire FTSE 100. And when its twice-yearly shareholder payouts hit my Self-Invested Personal Pension (SIPP), I certainly notice.
I invested a modest £4,000 at an average entry price of 226p. Today, the shares stand at 239p, so I’m up just 5.75%. But when I include my dividends, the total return is a bit more respectable.
So far, I’ve received three payments. The first in September 2023, the next two in June and September 2024. Total: £480.
My stake is rolling up
I automatically reinvested every one, as I always do, buying another 201 shares. This lifted my total to 1,980.
The fourth hits my trading account next month, on 5 June, worth 15.36p per share. I’ll get around £304, which will buy me another 127 shares and lift my total to 2,107. The phrase ‘slowly but surely’ springs to mind here.
Assuming the Legal & General share price doesn’t move much by 5 June (a pretty safe assumption given recent experience), my total stake will be worth £5,038. My total return will be a more respectable 26%, with dividends reinvested.
Rates cuts highlight the yield
Who knows, at some point the Legal & General share price may spring into life and I’ll get some growth. Perhaps when interest rates fall, investors will look more kindly on its dazzling yield. Which has the added benefit of looking reasonably secure.
The board recently announced a £500m share buyback programme and plans to return more than £5bn to shareholders over three years.
On the other hand, the shares could fall. Legal & General has business interests in the US, and while services have largely escaped tariffs, that could change.
I may have locked into a classic value trap, where profits and the share price idle for so long that eventually the dividend proves unsustainable.
I hope not. I’m already hooked on my regular cash injections. Forecasts suggest the stock will pay a full-year dividend of 22p next year. That would be worth another £463 to me. And I’ll reinvest every one to keep building my stake in Legal & General, and my income.
