Legal & General (LSE:LGEN) shares haven’t performed overly well over the past few years. The firm, which provides investment management, lifetime mortgages, pensions, annuities and life assurance, is down 0.91% over the past 12 months, and up 1.19% over three years.
So, over the medium term, it’s looking pretty flat. However, it’s currently down 9% over the past six months.
I already own shares in Legal & General, and I’m not doing too badly. But I’m considering buying more of this blue-chip stock before the market recovers and before the next earnings report. Here’s why!
Strong dividend offering
Firstly, Legal & General shares currently offer me with a 7% dividend yield. That’s a very strong return for a FTSE 100 business. In fact, it’s someway above the index average. The coverage ratio — a metric that measures the number of times a company can pay dividends to its shareholders — was around 1.85 in the last full year. That’s pretty healthy, although a figure above two would be preferable.
Positive outlook
The British multinational financial services and asset management company performed strongly in 2021. After announcing a huge 39% increase in annual pre-tax profits, the firm raised its dividend in April. Pre-tax profits came in at £2.49bn, while profit after tax jumped 28% to £2.05bn.
Legal & General now trades with a price-to-earnings ratio of 7.6, which is remarkably low for a blue-chip stock.
But how is it performing this year? Legal & General will release its H1 results of August 9. There had been plenty of speculation that companies would be struggling in the current environment. However, plenty of firms have outperformed forecasts in the first half, and I’m thinking Legal & General might be another.
In July, L&G said it has had a good start to 2022, noting that its operating performance has been in line with expectations. Management said it expects to deliver double-digit growth in cash and capital generation for the first half. This would certainly be a positive development.
Chief executive Sir Nigel Wilson said the company’s exposure to inflation was minimal and highlighted that cash and capital generation is running slightly ahead of the firm’s five-year ambition.
But I think there are other reasons to be positive on Legal & General. It’s is a massive player in asset management and life insurance, and I think its positive brand reputation will prevent capital outflows and attract customers.
Headwinds
While I would buy Legal & General shares at the current price, I’m aware there may some challenges in the near term. The stock is very exposed to the property market through its capital investment business.
Not many people know this, but Legal & General considers itself to be a “major UK housebuilder“. But with interest rates rising and a cost-of-living crisis, this segment could see some downward pressure in the coming months.
