When I look at the Legal & General Group (LSE: LGEN) share price and see how it’s fallen in the past year, I have to think it’s too low.
A share price fall alone doesn’t mean a stock is cheap. No, they often slump for very good reasons.
But when the fall has helped push the dividend yield as high as 8.6%, It makes me sit up and take notice. And now we have news that suggests business is going well.
Pension buy-in
On 24 November, Legal & General announced what it says is the “UK’s largest single buy-in by premium size“, and “for L&G, the largest single transaction by number of members“.
We’re talking about the Boots pension scheme here, as the insurance firm has agreed a £4.8bn full buy-in with the health & beauty retail giant.
In total, L&G has now written £13.4bn of Pension Risk Transfer (PRT) so far in 2023.
Who says the insurance business is having a tough time this year? Judging by the Legal & General share price, most of the big investment firms, I guess.
Good forecasts
Broker forecasts are a lot more bullish than we might guess from the share price chart. The stock is on a price-to-earnings (P/E) of 13 for the current year. But if earnings grow as predicted, we should see that drop to about 8.5 in a couple of years.
The tipsters say the the dividend yield could rise as high as 10% by 2025 too.
That’s on the current share price, and it shows how buying when a stock is low can help us lock in better long-term dividend yields.
Bigger yields
By 2025, if these forecasts come true, I expect the L&G share price will have gained a bit. So the same dividend cash would provide a lower yield.
But those who take on the risk and buy today could secure that 10%. And that’s the kind of yield that can provide long-term riches.
For example, what might putting £100 a month in a stock paying 10% a year in dividends get me? Well, it could reach more than £70,000 in 20 years.
I really don’t see it staying at 10% for 20 years. But I think it shows the value of any cash we might invest now, while yields are so high.
Uncerainty
Forecasts are clouded with uncertainty right now. And I expect the whole financial sector — banks, insurers, investment firms — to stay wobbly until the economy gets closer to normal.
How long might that take? I’ve no idea, but I suspect longer than a lot of people think. Still, I rate the sector as a long-term cash cow. And I think the short-term risk is worth taking.
So will I buy Legal & General shares? Well, I already bought some Aviva shares a few years ago. And though the share price has gone nowhere, I’ve at least been getting some decent dividends.
But yes, L&G is high on my list for my next buy. Hmmm, unless I go for Phoenix Group Holdings, with its 10% forecast dividend.
The post With an 8.6% dividend, is the Legal & General share price set for a 2024 surge? appeared first on The Motley Fool UK.
Should you buy Legal & General now?
Don’t make any big decisions yet.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.
And he believes they could bring spectacular returns over the next decade.
Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows…
When such enormous changes hit a big industry, informed investors can potentially get rich.
So, with his new report, Mark’s aiming to put more investors in this enviable position.
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
An 8.5% yield but down 15%! This FTSE 100 gem looks cheap to me
10.4% and 8.5% yields: which of these dividend stocks is best?
These dividend shares yield 8.5% and 9% and I think they’re on sale!
Buying 9,346 shares of this cheap stock would give me £2,000 a year passive income
I’d buy 14,493 shares of this stock to generate £250 of monthly passive income
Alan Oscroft has positions in Aviva Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
