Legal & General (LSE: LGEN) shares have been underwhelming for years, especially next to FTSE 100 rival Aviva.
The share price is up 8% in the last year, broadly in line with the index average. Over five years, it’s up less than 15%. The FTSE 100 has climbed a punchy 47% over the same period. So that’s severe underperformance.
Aviva has trounced them both, with gains of 28% over one year and 135% over five. So I understand why people might not rate Legal & General. As an investor, I’m disappointed myself.
Still, it remains one of the FTSE 100’s most popular income stocks, and with good reason. It hasn’t cut its dividend since the financial crisis (it froze it during the pandemic).
But it still faces a string of challenges including sticky inflation, relativley high interest rates and a sluggish asset management arm. Legal & General Investment Management has also struggled due to mixed performance in volatile stock markets. Management still needs to sharpen up its act.
In March, the company reported a 6% rise in 2024 core operating profits to £1.62bn. On Thursday (10 July), it announced a partnership with Blackstone, aimed at strengthening its annuities and global asset management propositions.
Earnings growth has lagged
Earnings per share have fallen in the last three years, pushing the price-to-earnings ratio to an eye-watering 87. Aviva looks pricey too, but its P/E of 26 is much easier to justify.
Given these circumstances, the Legal & General dividend is doing plenty of heavy lifting. The yield stands at 8.45%, the third highest on the index. It looks secure, with management committing to lift it 2% a year from 2025 to 2027. Not spectacular, but steady.
The board plans to return £5bn to shareholders over the next three years via dividends and share buybacks. That’s equal to around 40% of its market value.
A solid return in 2025
Despite the noise, Legal & General shares have quietly risen 9.6% so far in 2025. That’s a shade better than the FTSE 100, which is up 8.25%. So a £10,000 investment would now be worth £10,960. But that’s not all.
On 2 January, the stock traded at 230p. So a £10k investment would have bagged 4,348 shares. On 5 June, shareholders received a dividend worth 15.36p per share. That would have earned our investor £668, lifting their total holding to £11,628.
And there’s more to come. An interim dividend is due on 26 September. If that rises 2% from last year’s 6p, it’ll be worth 6.12p per share. So that’s another £266. If our investor had reinvested their June payout to buy more shares, they’d get a little more.
So while the share price may lack spark, the income brings oomph. And reinvesting dividends when the stock is unloved should buy more shares, which could prove useful when the good times return. Assuming they do.
A consensus of 11 analysts suggests the share price could hit 273.4p in the next year, a further 8% gain. Add the dividend and the total return edges close to 17%. That’s not bad in a tough market.
It’s taken patience, but those numbers show how dividend investing can quietly work its magic over time. Results like this are why investors might consider buying.
