Shares in financial services giant Legal & General Group (LSE: LGEN) are in the red today. As I write, shortly after the opening of the London Stock Exchange, the FTSE 100 company’s share price is down about 5.5%.
So what’s behind this big share price fall? Is there something to be concerned about here? Let’s take a look.
Why Legal & General’s share price is down 5.5%
The reason Legal & General’s share price is down this morning is quite simple – today is the ‘ex-dividend’ date. This is the day when all shares purchased no longer come attached with the right to be paid the most recently declared dividend.
And what generally happens, especially with high yielders like LGEN, is that when this date arrives, the company’s share price tends to fall by roughly the amount of the dividend. This reflects the fact that profits are set to be paid to shareholders, and not retained by the company.
This is exactly what we’ve seen here. Recently, LGEN declared a final dividend of 13.27p for 2021. This dividend is set to be paid out to shareholders on 1 June. And today, the share price has fallen by roughly the same amount, give or take a few pence, due to wider market forces.
So the fall today is absolutely nothing to worry about. This is a very normal part of investing.
What’s next for LGEN?
As for the outlook for Legal & General shares from here, I continue to believe it’s attractive. One reason I’m bullish here is that there’s plenty of scope for growth in the ‘bulk annuity’ space in the years ahead.
A bulk annuity is an insurance policy that’s purchased by pension scheme trustees in an effort to better secure members’ benefits. The aim is to remove the investment, interest rate, inflation, and longevity risks associated with defined benefit pensions.
2022 is expected to be a big year for bulk annuities with experts at Willis Towers Watson forecasting £40bn worth of deals. This should benefit Legal & General as it’s a leader in the industry.
Another reason I like the stock is that the company has built up a formidable investment management business in recent years. Here, it has assets under management of around £1.4trn. As markets rise over time, LGEN’s fees should rise too.
Meanwhile, I also see a lot of value on the table here. With analysts expecting the group to generate earnings per share of 33.3p this year, the forward-looking P/E ratio is just 7.9. That strikes me as a steal.
I’d buy Legal & General shares today
Of course, there are risks to consider here. Share price volatility is one. LGEN, like many other financial stocks, can be highly volatile at times. However, given the attractive growth prospects, the low valuation, and the big dividends the company is paying out, I like the risk/reward skew here. I’d be happy to buy LGEN shares for my own investment portfolio today.
