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The Legal & General share price isn’t the whizziest. It’s up a modest 10% in the last 12 months, and a grand total of just 17% over five years.
By contrast, the Legal & General dividend‘s a thing of beauty. It currently yields 8.45% on a trailing basis, one of the highest on the FTSE 100. For many investors, that’s reason alone to buy the asset manager and insurer. I’m one of them.
The shares are due a good run, in my book. They’re trailing FTSE 100 financial sector rivals such as Aviva, which is up 30% in a year and 142% over five, and wealth manager M&G, up 29% and 49% over the same periods. Can Legal & General play catch-up?
Growth plans emerging
The board knows it has to give investors something to look forward to. On 17 June, it outlined plans to boost investment arm LGIM by lifting operating profit to between £500m and £600m by 2028, equating to compound annual growth of 6-10%.
It also plans to grow private markets assets under management from £57bn in 2024 to more than £85bn. That would lift the share price, provided it came through.
On 12 March, Legal & General posted a 6% rise in full-year 2024 core operating profit to £1.62bn. That was strong enough to fund £500m of share buybacks this year, part of a wider plan to return £5bn to shareholders over three years.
The good news is that the dividend per share has risen steadily, as my table also shows. The 2024 full-year payout was increased by 5% to 21.36p per share.
| EPS growth | P/E ratio | Dividend per share | |
| 2020 | -28 % | 12.0 | 17.57p |
| 2021 | 55 % | 8.7 | 18.45p |
| 2022 | -62 % | 19.4 | 19.37p |
| 2023 | -43 % | 34.2 | 20.34p |
| 2024 | -61 % | 79.5 | 21.36p |
However, it may now grow more slowly. My figures suggest growth will slip to around 2.5% in 2025, 1.8% in 2026 and 1.35% in 2027. Based on today’s share price of around 253p, the forecast yield for 2027’s roughly 8.9%. Which is still pretty fabulous.
Earnings per share have been all over the place, with hefty double-digit drops in 2022, 2023 and 2024. As a result, the price-to-earnings ratio has soared from 8.7 to a pricey 79.5 times. I usually quake when the P/E hits 25, let alone anything higher. That’s something to consider.
Lots of income though
So what about that share price? Analysts have pencilled in a one-year median price target of 273.4p. If they’re right, that’s a gain of almost 8%. Add in the dividend and the total return could top 16% over 12 months.
That’s not explosive – but it’s not bad. Nor is it guaranteed.
Things that could go wrong. Legal & General is heavily reliant on the UK economy, which remains sluggish. That could hurt its property, insurance and investment businesses.
Its bulk annuity and pension risk transfer business is cyclical, and margins could be squeezed if pricing conditions turn, while LGIM is exposed to volatile markets.
I hold the shares, and will continue holding. The income is stable, but my other stocks in this area, M&G and Phoenix Group Holdings, have mustered growth too.
For income hunters, Legal & General is still a stock to consider buying. For those after growth, patience is required.
