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It is just a few days until the first half of the year ends and July begins. That seems like an opportune moment to review a Self-Invested Personal Pension (SIPP) and consider any potential sales or purchases.
My own SIPP is lighter on income shares that it was a few months ago. While some growth opportunities continue to attract me, I would also be happy to pick up some income shares in July if I have spare funds to invest.
One that has caught my eye is Legal & General (LSE: LGEN).
Long-term proven dividend star
A track record in the stock market, as elsewhere in life, does not necessarily give us a reliable indicator of what may happen next. But it can still contain valuable data.
Take Legal & General’s track record as an example. It has proven its business model over the long run, with a consistent ability to generate profits in recent years.
It has also proven willing to use cash flows to help fund dividend growth. The last cut in the dividend per share followed the financial crisis. Only in one year since then – during the pandemic – has the firm failed to raise the payout per share.
While that was 5% in recent years, growth is pencilled in for 2% annually in coming years. That is modest, but it is still growth. So it is attractive to me, given that the share already offers an 8.4% dividend yield.
Fair share price
What about the opportunity for share price gain? Here I am less optimistic.
Legal & General has seen its share price grow over the past five years. But at 17%, that growth has badly underperformed the wider FTSE 100 index’s gain of 42% during that period.
I also see some reasons that the share price could fall.
The changed dividend policy is one, not just because of the lower growth trajectory but also because it could be seen as a sign of weakness. That said, the company has promised to return cash through share buybacks too, but many investors including myself see dividends as a more tangible form of shareholder return than buybacks.
Profits have been notably weaker in the past three years than they were before. Last year, for example, net profit of £191m was less than a 10th of what it had been in 2021. With a highly competitive market for the sort of retirement-linked financial products in which it specialises and volatile stock markets risking weaker stock market returns, I see threats to future earnings too.
Another such threat to earnings is the company’s planned sale of a large US business. The upside of that however, is that it should generate a sizeable cash sum. That could help support the planned dividend growth.
On that basis, I do not see the current Legal & General share price as a screaming bargain. But in my SIPP I am happy to buy, for the long term, shares in great companies at attractive prices.
I do think this high-yield FTSE 100 share is fairly priced and I like its long-term business prospects, thanks to its strong brand and large customer base. So I will be happy to buy it next month if there is spare money in my SIPP.
