Legal & General (LSE: LGEN) shares have had a nice run recently. Since 12 May, they’ve climbed from 245p to 284p.
Have they been a good investment over the long term though? Let’s take a look at how they’ve performed over the last five years.
The five-year performance
Five years ago, Legal & General shares were at 267p. Given that they’re now at 284p, it’s fair to say that the share price hasn’t done much over five years.
It has only risen by 6.4%. That’s quite an underwhelming performance, especially when you look at the gains generated by some other stocks, such as Nvidia, Apple, Rolls-Royce, and Taiwan Semiconductor.
Of course, the main attraction of these shares is the high dividend yield on offer. So, we need to factor in dividend payments and obtain a total return (share price gains plus dividends).
Looking at the company’s dividend history, I calculate that over the last five years, investors have received a total of 101.31p per share in dividends. That represents a 38% return on the initial share price of 267p.
Add this to the share price gain of 6.4% and we get a total return of 44.4%. That’s obviously ignoring trading commissions and platform fees.
How does that stack up?
Is that a good return? Well, I’d say it’s pretty solid.
It translates to about 7.6% per year. That’s a much higher return than someone would have got from cash savings over the same period and roughly in line with the returns generated by the UK stock market over the long term.
Relative to some other stock market investments, however, it’s not great. For example, over the same period, FTSE 100 shares HSBC and BAE Systems shares have returned over 250%, more than five times the return of Legal & General.
Meanwhile in the growth stock space, Nvidia shares have returned over 1,000%, while shares in Filtronic (a small UK company providing wireless communication components to SpaceX) have gained more than 3,000%. So, investors could have potentially generated much higher returns in other areas of the market. The takeaway here is that high dividend yields don’t always lead to the best returns.
Still worth it?
Are Legal & General still worth considering? Well, they could be.
After all, the dividend yield is still very attractive. Currently, it’s around 7.8% meaning that there’s a lot of income on offer.
As for the valuation, it’s still relatively low. With analysts expecting earnings per share of 26.2p this year, the forward-looking price-to-earnings (P/E) ratio is only around 11.
But there are risks around the balance sheet and dividend payments. With big insurers like this, you never really know what’s lurking on the books — the high dividend yield suggests that big institutional investors see risks.
And I can’t help but feel that over the next five years, lots of other stocks, both UK and international, will generate higher returns for investors. So personally, I’m focusing on other opportunities.
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Edward Sheldon owns shares in Nvidia and Apple
