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Legal & General (LSE: LGEN) shares have been a popular investment over the last five years. One reason for this is that they pay big dividends.
But have the shares been a good investment overall across this period? Let’s crunch the numbers.
Share price weakness
On 12 February 2020, the shares closed the day at 313p. So let’s say that an investor bought £5k worth of stock at that price. Ignoring trading commissions, they would have picked up 1,597 shares.
Fast forward to today and Legal & General’s share price sits at 239p. That’s about 24% lower than the share price five years ago. So the investor’s initial £5,000 would now only be worth about £3,817.
Of course, we also need to factor in dividends here. I calculate buying the shares five years ago meant they would have received a total of 111.12p per share in dividends. Multiply that by 1,597 shares and we get roughly £1,775.
Add this to the capital figure of £3,850 and we get a total of £5,592 (I’m assuming the dividends weren’t reinvested). That equates to a total gain of 11.8% for the investor. On an annualised basis, that works out at about 2.3% a year.
Lousy returns
An 11.8% return over five years isn’t great. Especially when you consider the returns generated by some other stocks over the period (it’s been a strong bull market).
Take Alphabet (Google) shares, for example. Over the last five years, they’ve risen about 145% in US dollar terms. That equates to nearly 20% a year.
Apple shares have done even better. Over the last five years, they’ve risen about 185% in US dollar terms (they’ve also paid small dividends). That works out at about 23% a year.
Takeaways
To my mind, there are a few key takeaways here. One is that high-yield dividend stocks don’t always produce strong returns overall.
Just because a stock offers a juicy yield, it doesn’t mean it will be a good long-term investment. Often, better returns can be achieved with stocks that pay small dividends, or those that don’t pay any at all.
Another is that it’s crucial to diversify capital across many different stocks. If the investor had only owned Legal & General shares over that five-year period, they wouldn’t have seen wealth grow much.
However, if they owned Legal & General, Apple, Alphabet, and a bunch of other high-quality stocks, they could have potentially done really well and increased their wealth significantly.
Worth considering today?
Are Legal & General shares worth considering for a portfolio today? Well they could be, especially for those seeking income from their investments.
For the 2025 financial year, the company’s forecast to pay out 21.8p per share in dividends. That translates to a yield of about 9.1%.
However, dividends are never guaranteed. There are also no guarantees the shares will be a good investment overall (volatility in the financial markets could impact the company’s profits).
Personally, I’m a bit spooked by the recent performance track record of the shares. For those looking to maximise returns, I think there are better shares to consider buying.
