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Legal & General‘s (LSE:LGEN) price has fallen over the past month. At 251.7p per share, i FTSE 100 the company fell 8% following the release of disappointing trading numbers. Global stock markets did not help, as the Middle East plunged into crisis.
That’s a drop in stock prices twice Footsie’s broad decline is 4%. It makes me wonder: could Legal & General shares be a good buy for serious investors?
Big and good
At first glance, maybe not. It depends on whether you want more benefits or growth for your money.
One good thing about Legal & General is its high yield, which has risen as the share price has fallen. By 2026, this sits at 8.8%, which breaks the FTSE 100 forward average of 3.2% out of the park. Today’s yield is also much higher than the 10-year average of 7.7%.
However in terms of expected income things are not so good. The forward price-to-earnings (P/E) ratio is 10.2 times, which is above the long-term reading of 9.5 times. That’s below Footsie’s average of 12–13, in better news, but it doesn’t say anything about incredible value.
Near-term danger
On balance, I would consider Legal & General’s 8% price drop to be a nice little dip to help you out, rather than a potential buyout. Especially when you consider that the company is facing significant problems, as this month’s trading review shows.
One problem it needs to address is recent inefficiencies in its asset management division. But this may be easier said than done – if risk aversion continues to flood all markets, net inflows could heat up. The pressures here are made worse by the incredible levels of market competition. Last year, asset management profits essentially faded as the unit recorded only “modest growth.”
Performance was better elsewhere, meaning the group’s operating earnings per share rose 9%, at the end of the guidance. But if economic growth cools and inflationary pressures rise, can Legal & General continue to deliver? In the near term, I’m not so sure.
Bottom line
However this does not concern me much as a shareholder of Legal and General. This is because I buy and hold stocks with the intention of holding for a decade or more. At this time, I am sure that the company will bring unique benefits.
First, business is always (and should continue to be) an attractive money-generating machine. The result should be excellent earnings growth and payouts that outperform the broader market. Even if profits disappoint in the near term, I am confident that its compelling profit story will remain intact, supported by the company’s famously strong balance sheet. Its Solvency II ratio was 210% as of December.
And I think Legal & General’s share price will accelerate in the coming years. The world’s growing elderly population – combined with a growing interest in financial planning – is a successful combination that can tax income from current levels.
They may not be jaw-droppingly cheap. But I believe that Legal & General shares are still worth serious consideration for all savvy investors today.
