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Legal & General (LSE: LGEN) shares have only given me a modest capital return since I started buying them in 2023. So why do I like them so much?
According to my online trading account, I’m up just 7.1%. Hardly spectacular. But when I factor in dividends, my total return jumps to 19.9%. That’s a far more satisfying number. And I think it’s only the start.
I started building my position in the FTSE 100 insurer and asset manager in April 2023, adding to it in July and August that year. My average entry price was 226p. At today’s 242p, my capital gain is fine, but it’s not exactly Rolls-Royce. In fairness, I never expected it to be.
This FTSE 100 stock offers more income than growth
However, I’ve also received three dividend payments, in September 2023, and June and September 2024. All of which I reinvested to buy more Legal & General shares.
That income has helped turned my initial £4,000 into £4,796, after charges. Not a bad return, given I’ve only been fully invested for 18 months. It’s not brilliant either, but this is just the beginning.
Another juicy dividend will hit my account on 5 June, and another should follow in early September. Given Legal & General’s current trailing yield of 8.8%, I estimate they’ll total around £352. That will lift my holding up to £5,148, even if the share price doesn’t rise at all. If it does, my stake will be worth even more.
Of course, the shares might fall. My capital’s at risk, and while dividends are attractive, they’re never guaranteed. The Legal & General share price is up 5% in the last year. Over five years it’s down 25%.
It’s showing signs of life at the moment, up almost 10% in the last month. Shares tend to be cyclical, and a combination of falling interest rates and declining bond yields could drive fresh demand for UK dividend-paying stocks.
Especially with US growth shares looking expensive. As a services company, Legal & General may also escape the worst of Donald Trump’s trade wars. We’ll see. Defensive stocks like this could be coming back into fashion.
Today, the stock currently trades at 32 times earnings, more than double the FTSE 100 average price-to-earnings ratio of 15. That reflects some bumpiness in earnings, and it’s something to keep an eye on.
Some analysts think we could get a market crash, as Trumpian volatility kills Wall Street’s bull run. Legal & General has £1.2trn of assets under management, and they’ll plunge if that happens. That won’t help the share price. If sustained, it could imperil the dividend. Time will tell. Short-term market volatility is always a threat, but it’s the long run that matters.
Even when capital growth is unexciting, dividend stocks like Legal & General can generate serious wealth. The real rewards come after five, 10, or 20 years. That’s why I’m happy to sit back, collect my income, and let compounding do the work while making sure I understand my total return – including income – and not just share price growth.
