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The Legal & General Group (LSE: LGEN) share price has been stuck in the slow lane for too long. It’s up 10% over the last 12 months but that’s well behind FTSE 100 rival Aviva, which climbed 30% in the same timescale.
The long-term picture’s even more painful. Aviva’s up nearly 130% over five years, while Legal & General Group has crawled forward by just 9%. However, it means today’s buyers can lock in a hefty yield of 8.5%.
If Legal & General’s share price and dividend forecasts hold up, investors could be in for a pretty decent 12 months.
FTSE 100 straggler
There’s another consolation. On 12 March, the group’s full-year results included a £500m share buyback. That followed a £200m buyback last year, with £1bn more lined up once it completes the sale of its US protection arm.
Core operating profits rose 6% to £1.62bn in 2024, helped by strong showings in retail and institutional retirement. It also lifted the full-year dividend to 21.36p, up 5%. However, the board’s now capped annual dividend-per-share growth at 2% from 2025 to 2027.
On 17 June, the group outlined ambitious growth plans for its asset management arm. It’s aiming to boost annual operating profit to between £500m and £600m by 2028, helped by rising demand for private markets and retirement products. With £1.1trn under management, it’s already the UK’s biggest asset manager.
It also expects group earnings per share to rise 6-9% in 2025. That all sounds like a decent platform for long-term wealth creation.
Earnings miss
Yet recent history’s been rough. Earnings per share have tumbled 62%, 43% and 61% in the last three years. That’s left the stock with a price-to-earnings ratio of 88. On paper, that looks horribly expensive.
This stock isn’t risk-free. It remains highly exposed to UK consumer and business confidence. Asset management margins are under pressure, and if interest rates fall that could hit demand for annuities.
Compounding growth
The 10 analysts offering 12-month price targets see the stock hitting 274p, up around 9.75% from today’s 250p. Add in the forecast 21.9p dividend and the yield hits 8.77%. That lifts the potential total return to roughly 18.5%. If that plays out, £10,000 could grow to around £11,850.
Of course, forecasts are rarely spot on. But for a slow-and-steady stock like this, that would be a solid year. I prefer to think about the longer term. Over time, compounding does the heavy lifting. Reinvesting dividends during market dips can help too.
I hold Legal & General and I’m not selling. The income’s way too attractive to give up. I’m hoping it plays catch-up with Aviva, eventually, but there are no guarantees in today’s uncertain economic climate. That worrying P/E won’t fix itself overnight.
Still, with that blistering rate of income intact and the business shifting gear, I think Legal & General’s worth considering today.
