Markets have taken a battering in the last few years. But while share prices are beaten down, there is one positive. That’s higher yields. With that, I’m looking at dividend shares.
Legal & General
With a yield of 8.6%, I’m tracking Legal & General (LSE: LGEN) very closely. I’m a shareholder. And while the stocks posted a strong performance in the last month, any sign of a slight pullback and I’ll be buying more shares.
In terms of FTSE 100 payouts, there are only four companies that trump the financial services firm. What’s more, its dividend is covered around two times by earnings.
Before I move on, I must make it clear that dividends are never guaranteed. We saw this with the pandemic. However, Legal & General’s dividend has seen a steady rise for the last 10 years. That track record provides me with a level of comfort.
Its cumulative dividend plan is set to finish next year. And as part of this, it’s on track to return between £5.6bn and £5.9bn to shareholders. As an investor always seeking extra income, these are the sort of initiatives I want to see. This fits more widely into Legal & General’s aim of “delivering an attractive combination of income and growth”.
Aside from an attractive yield, it looks cheap. A price-to-earnings ratio of six is around half of the Footsie average.
Of course, I do have some slight concerns. The current economic environment has hit the business. And its assets under management have taken a tumble as a result. While inflation is falling, 2024 may still prove to be tough. This could see investors grip onto their hard-earned cash for a little longer.
However, I’m a long-term investor. And I can’t turn down the combination of a low valuation and high yield.
Vodafone
As I highlighted earlier, only a handful of companies offer a higher yield than Legal & General. And one of them is Vodafone (LSE: VOD).
The business is number two on the list, yielding a whopping 11%. Only Phoenix Holdings tops it, just slightly. Its enticing yield is partly due to a 22% decline in its share price in the last 12 months. But at 71p, I’m tempted to buy.
Vodafone has taken strides to streamline under new CEO Margherita Della Valle. As part of this, it recently offloaded its Spanish business for €5bn in a deal with Zegona Communications.
On top of that, growth in Germany, one of its core markets, is a further positive. And I also like the firm’s investment in Africa. It serves 170m people on the continent. And in its latest results, revenue grew 9% for the region.
The business has borrowed heavily in recent times to fuel this expansion. And one major issue with that is the debt its incurred. The business has a €36bn pile. With interest rates amped, that’s bad news.
Rising costs have also hit the firm’s margins, which shrunk in the latest quarter. This is an issue I’ll be watching closely.
My move
My plan is to pick up some Legal & General shares when I have the spare cash. While I like Vodafone, it’s remaining on my watchlist for the foreseeable future.
