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Is the Legal & General share price good value?

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The Legal & General share price at the time of writing is around 270p per share. Not that much above where it was five years ago. Since 2016, the share price has hit a high of 314p in Feb 2020 and a low of 157p a month later. It has spent quite a bit of time fluctuating either side of 250p. But while that may seem uninspiring, there are reasons to like the shares, in my view. 

What to like about the shares

I hold these so this one is easy for me. It’s the dividend. Management were brave throughout the pandemic keeping the dividend. It’s clearly a focus for them. The shares currently yield around 6.5% so are up there amongst the highest on the FTSE 100. Yet unlike other high-yielding shares, I don’t see Legal & General facing the same external threats.

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For example, tobacco shares have a high yield to attract investors because the industry faces massive challenges from public health campaigns, sin taxes and legislation – especially against the next generation products like vaping. Tobacco shares therefore could arguably be seen as a value trap.

For me Legal & General is not a value trap. The dividend should be sustainable and needn’t come at the cost of share price growth. But management does need to try and get the shares moving back up.

The group is boosting its work around retirement planning and annuities. As we become a greater population this ought to be an area of growth for the business. Greater pension freedoms should also help Legal & General.

What’s not so appetising about L&G

Paradoxically it may also be the high dividend yield. There’s a chance the payout ratio is too high and is starving the business of cash to invest in growth. All businesses should work hard to stay competitive and that usually involves investment. This may be why over the last five years the share price hasn’t really risen. Investors haven’t been excited by the slow and steady nature of the business. 

Given that Legal & General is a financial share and tied to the UK economy in many ways, perhaps it’s unsurprising its share price hasn’t gone anywhere. Rival Aviva has actually fallen over five years, as have bank shares, which also act as a proxy for UK plc.

My view on the Legal & General share price

Legal & General has a steady business, a strong brand, a good management team and doesn’t face massive external challenges to its business model. It operates in a safe and steady industry, which doesn’t face disruption in the same way many other industries do.

Overall I think I’m happy to hold Legal & General shares for the dividend. I think with an economic boost on the horizon from ending lockdowns, perceptions around the share can improve.

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Andy Ross 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.

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