Legal & General (LSE: LGEN) shares have been a disappointment. While other FTSE 100 financial stocks have picked up pace, including super soaraway rival, Aviva, L&G shares have fallen behind.
The Legal & General share price is up 10% over the last year, but two-year growth is a meagre 7%, and long-term investors have even more reason to feel short-changed. The shares still trade at similar levels to a decade ago.
FTSE 100 underperformer
There is one consolation. This is one of the highest-yielding stocks on the index, with a trailing dividend yield of 8.33% today. That’s not bad going. Better still, Legal & General has raised its dividend almost every year for 15 years. The exception was in 2020 during the pandemic, when it froze the payment.
These haven’t been token increases, either. Over that period, the average annual hike has been an impressive 12.12%. So while the share price has made little headway, the income has been excellent. That said, even this bright spot is starting to dim. From 2025, future dividend growth is expected to slow to just 2% a year.
Short sellers circling
Investors are losing patience. New data from AJ Bell shows that interest from short sellers has jumped fourfold in a matter of weeks.
Shorting involves selling borrowed shares in the hope of buying them back later at a lower price, then returning them and pocketing the difference. The proportion of Legal & General shares on loan has risen from 0.5% on 1 July to 2% by 22 July.
That’s still a relatively low figure, but the pace of increase is hard to ignore. It’s one of 14 UK stocks seeing a marked increase in short positions.
It’s not hard to see why some might be betting against the business. While it posted a 6% rise in 2024 core operating profit to £1.62bn, earnings per share have been sliding. The shares now trade on a price-to-earnings ratio of more than 88, which looks stretched for a company with such a sluggish growth record.
Income but I need growth too
The board has been taking strategic action to sharpen its focus and boost long-term returns. On 12 March, it announced a £500m share buyback programme and laid out plans to return £5bn to shareholders over three years through dividends and buybacks. That’s almost 40% of its market cap.
It’s also been slimming down. It sold its US protection arm and Cala Homes, and struck a strategic partnership with Japan’s Meiji Yasuda to strengthen its asset management reach and US presence.
On 10 July, it signed a deal with Blackstone to access US investment-grade private credit and launch a suite of hybrid public-private credit products. Group CEO António Simões said this would “enhance shareholder returns and support sustainable growth”. The market barely blinked. That’s telling.
Not quite bargain territory
The 14 analysts covering the stock forecast a modest 2.75% increase in the share price over the next 12 months. That would give a total return of a little over 10% including dividends. It’s not terrible, but with the rest of the FTSE 100 buzzing, it’s pretty dour. I’m enjoying the dividends, but not the lack of growth.
I wouldn’t short the stock – even if I dabbled in that sort of thing – but I can’t make a strong case to buy more right now. I’ll sit tight, reinvest my dividends, and hope something eventually turns up.
