The UK stock market has burst into life lately, but there are still dividend shares around that look like decent value.
For example, with its share price near 249p, Legal & General (LSE: LGEN) has a forward-looking dividend yield for 2025 of around 9%. That compares to the aggregated yield of the FTSE All-Share index of about 3.7%.
Maybe the high yield is making some investors wary of the financial services company. After all, anything above 7% often looks vulnerable to director slashing!
Good trading
However, the business is trading well, and the stock has been range-bound for a decade. And it’s possible for the yield to fall because of a rising share price rather than a falling dividend.
But City analysts expect the shareholder payment to increase by over 5% both this year and next. Those rises follow a strong multi-year record — the company didn’t even trim the dividend in the pandemic year.
Nevertheless, Legal & General’s earnings and cash flow history shows volatility. That’s probably because of the cyclicality in the business and the financial sector as a whole.
There’s risk in that situation for shareholders — one decent general economic downturn could torpedo the firm’s earnings, cash flow, dividends and share price.
One of the outcomes of the uncertainty is the low-looking valuation. I reckon it’s the market’s way of accounting for volatility in the trading figures. Because of that, it seems unlikely the valuation will ever become eye-wateringly high. But if we see another bubble-like bull market, I could easily be wrong.
An improving economy
I’m bullish about the prospects for the economy over the next few years. Inflation is back under control and it looks like we could see interest rate cuts ahead. Meanwhile, energy costs are lower, supply-chain challenges have been easing, wages have risen for many, and people could soon have more money in their pockets.
If that happy set of circumstances gathers pace, it’ll help many businesses to thrive, including those in the financial sector such as Legal & General.
Back in March, with the full-year report, the company delivered an upbeat outlook statement. So that makes the business well worth further research and consideration.
Legal & General looks attractive to me, but so does Moneysupermarket.com (LSE: MONY), which is soon to change its name to MONY.
Earnings have been recovering well after falling in 2020 and 2021 because of the pandemic. In 2025, analysts expect them to exceed 2019’s level.
Strong brands
Meanwhile, the company also didn’t cut its dividend when Covid struck. The firm’s operational strength is underpinned by several strong brands, such as MoneySuperMarket, MoneySavingExpert, Quidco, Decision Tech, TravelSupermarket and Icelolly.
With the share price near 235p, the forward-looking yield is near 5.6% for 2025 and that looks attractive to me.
There’s some risk that competition in the future may eat into the company’s market share. But recent outlook statements have been upbeat – so far, the firm’s brands have been hard for competitors to crack.
I’d consider both stocks now for inclusion in a diversified portfolio within a Stocks and Shares ISA.
