Legal & General Group (LSE: LGEN) has had a good run in the market recently. Its share price has risen 6% in the last month and 17.8% in the last year. If I had £1,000 to invest today, I would buy this FTSE 100 finance and insurance giant’s stock. Here’s why.
Strong financials
The 2021 half-year (H1) report shows impressive growth and cash generation. Operating profits went up 14% from H1 2020 levels to £1.07bn. Coupled with the cumulative cash and capital generation of £2.4bn and £2.3bn respectively, the company looks to be in a strong position to make large investments in projects that show potential.
In fact, Legal & General Capital (LGC) was the fastest-growing division in terms of profits. LGC deals with strategic investment of capital generated from asset management and insurance ventures and grew 103% to £250m in 2021. Investments in clean energy and affordable real estate projects are oriented toward community growth, which is an encouraging sign for me as an investor.
The Legal & General Insurance (LGI) wing reported a 52% increase in profits to £134m. This is despite the significant rise in pandemic-driven retail protection claims in 2021, currently at £80m in 2021. This number could subside allowing LGI’s revenue to grow in 2022 and beyond.
Shareholder-centric model
Recent data supports my notion that Legal & General is an excellent option for shareholders. Their revenue redistribution model allows for steady growth in returns for investors. In 2021, the company reported a 22% return on equity compared to 20.2% in H1 2019.
The company managed to carry over its 2019 annual dividend of 17.57p into 2020 despite the turbulence of last year. With several FTSE 100 staples cutting down on dividends completely in 2020, I think this deserves plaudits. Thanks to the strong balance sheet with a £3.4bn credit default reserve, the 2021 interim dividend has gone up 5% at 5.18p (2020: 4.93p).
The declared dividends in 2020 were £1.04bn. The company aims at a cumulative dividend payout of £5.6bn-£5.9bn by 2024. Historic dividend data shows a 12% compounded annual growth rate since 2011. This puts it on top of my FTSE 100 stocks to buy list based on dividend yield alone, which stands at 6.6%. This value is higher than the FTSE 100 average dividend yield of 3.3%.
Earnings per share have also recovered steadily from 2020 levels and currently stands at 17.78p. As a potential investor, I see this as an optimistic sign that the company is set for steady growth over the next decade. The company featured on my previous list of best long-term investments and continues to impress.
Concerns
Business-centric insurance clients suffering from revenue cuts during the pandemic could force restructuring in the near future. Also, the potential depreciation in the value of assets, revaluation of interest rates, and credit defaults stemming from the economic impact of the pandemic may impact profitability over the next six to 12 months.
Despite the large market share, there are many regulations, taxes, and larger economic factors that could dampen profits in the future. The company also faces strong competition from the likes of Aviva and RSA Insurance Group.
But I still remain strong in my opinion that Legal & General is one of the best defensive FTSE 100 shares I could own for long-term returns. The steady dividend yield of 6.6%, strong fundamentals, resilience, and projected growth in shareholder returns makes it the one FTSE 100 share I’d buy with £1,000.
