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Over the last 12 months, the Legal & General (LSE:LGEN) share price has delivered a ground-shaking performance, with the stock basically flat. However, that hasn’t stopped shares from gaining popularity thanks to its impressive 8.8% dividend yield. In fact, the insurance giant now offers the third-highest shareholder payout in the entire FTSE 100!
Usually, a high yield can be a warning sign to steer clear. So is the Legal & General share price about to tumble? Let’s take a look at the latest analyst projections.
Near-term forecasts
As of this month, there are 16 institutional analysts following this business, nine of which actually rate the stock as a Buy or Outperform. That’s some pretty bullish sentiment coming from City analysts. However, when looking at the share price targets for the next 12 months, opinions start to diverge.
One appraiser’s convinced the Legal & General share price could climb to as high as 335p – a 37% increase from where it’s currently trading. Yet another believes the stock could fall by 14% to 210p. So what’s behind these projections?
Digging into the details
In 2024, the company delivered a 6% bump to core operating profits, boosting them to £1.62bn, in line with expectations. However, the root cause of this robust performance stems from pension risk transfers (PRTs). As a quick crash course, PRTs are a way for defined benefit pension providers to offload risk to the market and have become popular in recent years due to the rise of interest rates.
PRTs were actually responsible for 50% of profits in Legal & General’s Retirement division. In fact, the company currently controls the largest portion of market share in this space versus peers at 23%, according to RBC Capital Markets.
However, the gravy train seems to be slowing. Higher levels of competition and falling PRT volumes could impact near-term earnings growth. And this uncertainty’s likely a large reason why most investors aren’t rushing to capitalise on the near-9% dividend yield.
Despite this slowing tailwind, management doesn’t appear overly concerned about an impending slowdown, given it has just launched a £500m share buyback scheme. At the same time, dividends also received a welcome boost by 5% to 21.36p per share. These combined contribute to the group’s new target of returning at least £5bn to shareholders within the next three years.
Time to buy?
Seeing a company repurchase its own stock, hike dividends, and deliver profit growth are all encouraging signs. And when paired with an impressive dividend yield, it makes for a tempting offer.
Even if the PRT market continues to slow, efficiency efforts could help offset the impact on earnings through margin expansion. And with the shares trading at a fairly reasonable forward price-to-earnings ratio of 10.5, investors may want to consider taking a closer look, even with the risk of uncertainty.
