We all have our FTSE 100 dividend share favourites, those buys that confirm our deep research, our insight into long-term value and those that shield us from wild bets and short-term thinking.
If I had £10,000 to spend on a solid FTSE 100 dividend share to boost my wealth, then Legal & General (LSE:LGEN) would be top of my list.
I say the insurance giant is one of the best placed to deliver great results long after these volatile markets are a distant memory.
This is especially true when you buy stocks using a Stocks and Shares ISA, because it’s a legal way to shield your gains from the taxman with a generous £20,000-a-year limit.
I love boring, profitable companies that keep delivering year after year.
A near-£1bn deal to insure the pension scheme of FTSE 250 sugar manufacturer Tate & Lyle announced in September is further evidence that LGEN has good long-term value.
In 2012 Tate & Lyle spent £347m with Legal & General on a similar scheme — that it has returned seven years later for a deal three times the size bodes well, in my opinion.
Offering a well-proportioned 6.2% yield, I think LGEN should form part of a solid selection of FTSE 100 dividend shares that grow your wealth while you sleep.
Also in this select group, by the way, are 7.2% yielding insurer Aviva, and for a little diversification, booming UK REIT Tritax Big Box, or British Land with (in my opinion) its undervalued price and 5% dividend.
Cover all bases
Dividend cover is a key metric in deciding which FTSE 100 dividend shares you can buy and forget. Since 2014, LGEN’s dividend cover has not dipped under 1.37 times earnings. The past two years have been some of the best yet, up at 1.8 or 1.9 times earnings.
This gives long-serving CEO Nigel Wilson a lot more leeway to divest spare cash to his favourite people: shareholders.
Shakier firms may try to placate noisy shareholders by handing out more in dividends that they can really spare. But paying out a higher proportion of earnings than you can strictly afford always leads to longer-term losses.
Full-year LGEN dividends per share have been chugging along at a steady upwards clip. In 2014 they were at 11.25p. The following year? 13.4p. In 2016 they hit 14.35p, 2017 saw full-year dividends per share at 15.35p, and last year they reached 16.42p.
2019’s interim dividend of 4.93p per share is higher than any of the previous five. If that’s anything to go by — and it usually is — we’re on track for another booming full-year dividend.
LGEN currently trades at a price-to-earnings ratio of 9.03, which means to me while the shares are not dubiously cheap, on the basis of strong long-term gains, this price looks like a bargain.
I ignore shares trading below 6 or 7 times earnings. From experience, at these lower levels, something is wrong in the back end and the market just doesn’t trust the company will actually deliver the earnings it has projected. It happens all the time.
To be a canny long-term buyer, you need to watch these signs and disregard stocks with extremely cheap P/E valuations: they are simply traps for the unwary investor.
Don’t miss our special stock presentation.
It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.
They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.
That’s why they’re referring to it as the FTSE’s ‘double agent’.
Because they believe it’s working both with the market… And against it.
To find out why we think you should add it to your portfolio today…
Tom owns shares in Legal & General. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.