Legal & General (LSE: LGEN) shares are finally springing to life. Every FTSE 100-focused investor knows the insurer and asset manager offers a fantastic dividend yield, but growth has been scarce. Now it’s starting to show.
Could this be the year the Legal & General share price finally delivers?
I’ve a vested interest, because I hold the stock in my Self-Invested Personal Pension (SIPP). I love it when the twice-yearly dividend hits my SIPP, but the shares have lagged the two other high-yielding FTSE 100 financials I hold, M&G and Phoenix Group Holdings.
Exactly a year ago, I checked analyst forecasts for Legal & General and found brokers were predicting 12-month share price growth of 15%. Combined with a forecast yield of 9.5%, it meant Legal & General could deliver a total return of around 25%.
FTSE 100 passive income hero
I was cautious, dazzled by the yield but wary of what I called the “wafer-thin dividend cover of just 1.1 times earnings”. Yet with the board expecting to generate another £5bn-£6bn of capital by 2027, I decided the stock was worth considering.
Looking back, the brokers were surprisingly prescient. Legal & General shares are up 15.94% over the last year. Throw in the trailing yield of 8.04% and the total return comes to 23.98%, turning £10,000 into £12,398. Not bad, although hardly stellar. The FTSE 100 as a whole grew 21.5% last year. With a trailing 3.2% yield on top, it’s marginally ahead.
Also, Legal & General shares were well behind M&G and Phoenix, which both rose 45%. It’s the laggard in a booming sector. How come?
The company’s profits and revenues have been bumpy lately, with earnings per share (EPS) tanking for three years in a row, as my table shows.
| 2021 | 2022 | 2023 | 2024 | |
| EPS | 34.19p | 12.84p | 7.35p | 2.89p |
| EPS growth | 55 % | -62 % | -43 % | -61 % |
Full-year 2024 results, published in March, weren’t all bad. They showed a 6% rise in core operating profit to £1.6bn. Investors also got £500m in share buybacks. Pensions risk transfers brought in £10.7bn, and the Solvency II ratio stood strong at 232%.
Mighty dividend yield
There was better news in October, when the board said it expects EPS to grow in full-year 2025, and at the higher end of its 6%-9% target. The current price-to-earnings ratio is a dizzyingly high 91, but as earnings rise that’s forecast to fall to a more reasonable 10.9 in 2026. The forecast yield is a mind-blowing 8.37%.
There are always risks. A wider market crash would hit Legal & General, as would any earnings miss. But as the shares gather momentum, I remain optimistic. Until I checked out broker forecasts for the year ahead. They produce a one-year share price target of around 265p. That’s roughly where the shares stand today.
I was hoping for more. No matter. Dividend income stocks like this are for the long term. I still think Legal & General shares are worth considering right now. The real benefit should come from holding them for years, allowing the dividends to compound while treating any share price growth as a welcome bonus.
