The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years. So why would our writer still buy the shares?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young female business analyst looking at a graph chart while working from home

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

From an income perspective, the appeal of Legal & General (LSE: LGEN) is clear. With its 8.1% dividend yield, the FTSE 100 income share is a passive income machine providing money regularly for legions of investors. But while the dividend side of the equation looks good, the share price has performed less impressively.

Over the past five years, the Legal & General share price has not even managed to stand still, falling 2%.

That might not seem like a big dip. But when taking high inflation of recent years into account, in real terms it is significant. The FTSE 100 index overall has increased 16% during that period.

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

Created with Highcharts 11.4.3Legal & General Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

So is the flat Legal & General share price a possible buying opportunity for me? Or could it be a warning signal that the share is not as attractive as it may at first seem?

Hard-to-please investors

Looking at the performance of the financial services firm over the past few years, it is not obvious why there has been so little apparent enthusiasm for the shares.

The company has been a massive cash generator, returning billions of pounds to shareholders in the form of dividends alongside a share buyback programme. It has been massively profitable, making post-tax profits of over a billion pounds for some years before reporting smaller earnings for the past two years. But even then, the company was still solidly profitable. Last year, for example, it earned £443m after tax.

Perhaps those declining earnings explain why the Legal & General share price has been falling.

Yes, the business is strong and yes, it has been making lots of money. But some of the key business performance measures have been heading in the wrong direction. Not only post-tax earnings but also revenues were lower in the past couple of years than they had been in the few previous years.

Long-term fundamentals

While the reported earnings may not seem reassuring, I think the long-term picture continues to look strong.

Reported earnings can move around for firms like Legal & General due to swings in underlying asset valuations.

When it comes to cash generation though, the business has continued performing well. On what is known (due to the regulatory regime) as a Solvency II basis, last year saw capital generation of £1.8bn, the same as the prior year. That is equal to over a 10th of the firm’s current market capitalisation of £15bn.

Over time, I expect revenues and earnings to move around, perhaps substantially. But I also reckon that the business will continue to generate sizeable cashflows. It has a well-known brand, large customer base and deep experience in the pensions market. I expect client demand for such products to be resilient.

Relative to those cash generation prospects, I think the current Legal & General share price looks like good value. On top of that, the company has a dividend yield over double the FTSE 100 average.

If I had spare cash to invest I would be happy to buy the shares today.

Should you buy Lloyds Banking Group now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Dividend investors! Here’s what Warren Buffett says builds wealth in the stock market

Reinvesting dividends at yields of 8% or higher looks like a good way of building wealth. But Warren Buffett has…

Read more »

Calendar showing the date of 5th April on desk in a house
Investing Articles

Here’s my Stocks and Shares ISA plan for 2025-26

A Stocks and Shares ISA helps investors avoid taxes on dividends and capital gains. And Stephen Wright has a plan…

Read more »

Dividend Shares

Of the 20 highest-yielding FTSE 100 stocks, this is my top pick

This FTSE 100 stock currently offers a yield of 6.4%. But Edward Sheldon believes it’s capable of providing share price…

Read more »

Investing Articles

Could Tesla’s share price jump over the next 12 months? These analysts think so!

Tesla's share price has fallen by almost a third since 1 January. But optimism is high that Elon Musk's company…

Read more »

Investing Articles

I asked ChatGPT where the FTSE 100 will be in 6 months: here’s what it said…

Let’s be realistic, ChatGPT can’t predict the future. But it did do a good job of compiling data from brokerages…

Read more »

Investing Articles

Could the Rolls-Royce share price hit £10?

The Rolls-Royce share price has taken most analysts by surprise with almost everything going right for the British engineering giant.

Read more »

Investing Articles

4 REITs Fools own for passive income

REITs often have higher-than-average dividend yields compared to other stocks, making them a solid choice to consider for passive income…

Read more »

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »