There’s one outstanding reason to buy Legal & General (LSE: LGEN) shares today. If you know anything about this stock, you’ll know what it is.
For those who don’t, it’s the dividend. The blue-chip insurer and asset manager offers the most general yield on the entire FTSE 100. When I checked it out last week, the trailing yield was a bumper 8.1%. It’s since retreated to 7.8% but tha’s still jolly good.
Unfortunately, every investor who is familiar with Legal & General knows there’s one big reason not to buy it today. The share price has gone nowhere for years. Lately, it’s been trading at 2014 levels. Investors have pocketed a lot of income, but they haven’t seen much growth.
Will this FTSE 100 ever stock grow?
I have a largeish position in the stock. I like it when the dividend lands, twice a year. But I would love to see the share price grow too. Legal & General operates in a cyclical sector, and I’m basically re-investing all my dividends for the day when it all kicks off. Is it here now?
The Legal & General share price is finally showing signs of life, climbing 13% in the last three months (which explains that retreating yield). Obviously, it’s not shooting the lights out. The shares are only 10% higher than a year ago. But I’m hoping it’s the start of the revival.
And I’m not the only one. Legal & General is currently the single most bought stock on the AJ Bell investment platform, accounting for an impressive 12.5% of all stock purchases. That’s way ahead of second placed Rolls-Royce at 6.9%. Rolls is of course a FTSE 100 growth monster and Legal & General most definitely isn’t, so there’s a lot of income seekers out there. But why are they all gathering now?
Legal & General will have been helped by the wider market pick up, as hopes of some kind of peace deal with Iran climb.
How safe is that dividend?
Another attraction is that the yield is supported by a strong balance sheet. The Solvency II coverage ratio is a solid 210%. The board recently found the cash to fund a record £1.2bn share buyback. That was announced in March and may have given the share price an extra nudge. Legal & General remains good value, with a forward price-to-earnings ratio of 8.9.
There are downsides of course. The dividend is set to grow at just 2% a year in future. That’s below the current inflation rate, which means it’s shrinking in real terms. Legal & General has to battle for every scrap of new business in a competitive market. A wider stock market crash would do some damage, as it has £1.2trn of assets under management.
I can’t guarantee its shares will continue to climb in the weeks ahead. But I still think this stock is worth considering, because one day it will hopefully start to play catch up. In the meantime, there’s that income.
Should you invest £5,000 in Legal & General Group Plc right now?
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Harvey Jones owns shares in Legal & General Group and Rolls-Royce Holdings.
