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Sometimes I feel like giving up on the Legal & General (LSE: LGEN) share price. When I added it to my Self-Invested Personal Pension, I felt the shares were so cheap they were ready to rocket. The price-to-earnings ratio was around six or seven at the time.
They haven’t done too badly over the last 12 months, climbing about 20%, but that was from a low base. At today’s 255p, they’re actually below the 265p they traded at back in August 2015. That’s a whole decade of going nowhere.
FTSE 100 underperformer
The board described today’s (6 August) half-year results as “excellent”, but the market disagreed, with the shares dropping around 2.5% in early trading.
The headline numbers weren’t bad. Core operating profit rose 6% to £859m, while IFRS pre-tax profit jumped 28% to £406m. Much of the strength came from the institutional retirement segment, which delivered double-digit profit growth and over £5bn in new business.
Retail also looked solid. Workplace pension assets now exceed £100bn, with net flows climbing 21% year on year to £4bn. Operating profit rose 3% to £237m.
Its asset management arm was less inspiring. Operating profit dipped from £214m to £202m, with the group blaming market volatility and a weaker US dollar for a 1% drop in average assets under management. That explains some of today’s market reaction.
Still, Legal & General is doubling down on this part of the business. Asset management now holds £1.1trn in AUM, with 43% outside the UK. A shift towards higher-margin products lifted revenue slightly from £492m to £500m. Net flows of £5bn were well below last year’s £28.5bn though.
High yield, low growth
There’s one thing I haven’t doubted, and that’s the dividend. The trailing yield has now crept up to 8.35%, one of the highest on the FTSE 100.
Legal & General declared an interim payout of 6.12p per share today, up 2% on last year, in line with previous guidance. That’s below today’s inflation rate of 3.6%, so it’s a cut in real terms. Chief executive António Simões said the group was “firmly on track” to hit its targets and reiterated plans to spend more than £5bn on dividends and share buybacks over three years.
I hold a couple of other big FTSE 100 financials – Phoenix Group Holdings and M&G – and both have delivered more share price growth. Legal & General is the laggard.
What the forecasters say
Growth hopes look thin right now. The consensus forecast from 14 analysts suggests the shares will hit just 263.6p over the next 12 months. That’s a meagre 3% capital gain, if correct. With the yield factored in, the total return could hit 11% or 12%. That’s decent enough, but once again, it’s the income doing the heavy lifting.
Some investors might consider buying the stock for that income stream alone. Personally, I’d like a bit more growth from a long-term holding like this.
Still, investing is about patience, especially in mature financial stocks. Legal & General has disappointed for a decade, but I do believe it’s due a better run at some point. In the meantime, those dividends are rolling up nicely. I just wish the share price was too.
