I’d buy 5,800 shares of this stock for £100 in monthly passive income

Reliable, long-term, high-dividend yields are the secret to building a large passive income stream. And this unloved stock might do the trick.

| More on:

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.

Generating a sustainable passive income with dividend shares requires investing in quality businesses with long-term potential. And there are plenty of FTSE 100 companies that currently fit that bill. Yet, by taking on a bit of extra risk and venturing into higher-yield territory, the income-generating capabilities of a portfolio can significantly improve.

Legal & General‘s (LSE:LGEN) recently caught my attention and is one I’m considering. The insurance sector in general hasn’t had a great time of late, even with the stock market as a whole enjoying a rally in 2024. Subsequently, the shares of this industry leader currently offer prospective investors a whopping 9.4% dividend yield. And better yet, this payout’s still growing!

Considering the FTSE 100’s only averaged a 6% annualised return over the last decade, unlocking market-beating gains from dividends alone sounds quite exciting. Even more so, since all I’d have to do is buy around 5,800 shares to earn an extra £100 passive income each month, not to mention the extra income I’d earn if Legal & General continues to raise shareholder payouts.

So is Legal & General a good investment in 2024?

Impressive dividends

Since 2009, L&G’s increased dividends every year, excluding 2020, due of the pandemic. And for investors who held on throughout this period while reinvesting payouts, the returns have been quite impressive. In total, investors have earned a 585% return which, on an annualised basis, is equal to 13.7% – more than double what the FTSE 100’s delivered over the same period.

Despite this, shares of Legal & General haven’t received much love of late. And it’s not entirely unjustified. Insurance businesses of all sizes are highly susceptible to economic downturns, making it a cyclical industry. So with uncertainty surrounding inflation and interest rates, it’s not surprising that over the last few years, Legal & General shares haven’t been stellar performers.

So far, investors seemingly remain nervous, pushing the forward price-to-earnings (P/E) ratio to a mere 9.2 and the dividend yield to more than 9%. The question now becomes, is this depressed valuation warranted?

Digging deeper

In the latest interim results, operating profit came in at £849m. That was only a marginal increase versus the £844m a year ago. But rising debt costs and investment losses dragged net income down quite heavily from £377m to £223m – a 40% drop!

Pairing this with a 3% tumble in assets under management, these financials are obviously far from brilliant. Yet, from an operational standpoint, the business is making some notable progress, specifically in the UK pension risk transfer market (PRT).

2023 was a record year for PRT with Legal & General booking £4.9bn in the first half. PRT volumes in the first half of 2024 only landed at £1.5bn. However, management’s announced it’s currently sitting on a PRT pipeline that’s “larger than ever”, with £5bn of transfers having already been either written or are exclusively Legal & General’s.

In other words, the firm’s medium-to-long-term growth potential looks impressive, in my opinion. Pairing that with a steadily improving economic landscape and a cheap-looking valuation, Legal & General shares may be a worthy addition to my income portfolio when I have the cash.

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.

Zaven Boyrazian 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.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »

Investing Articles

The JD Sports Fashion share price has just plunged another 16%! Buy or sell?

Harvey Jones is reeling after another sharp drop in the JD Sports Fashion share price. Should he seize the chance…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

This once-great FTSE 250 UK fashion retailer is down 47%, so is it time for me to buy?

A formerly iconic UK fashion brand, this FTSE 250 firm has fallen out of favour. But it has a new…

Read more »

Investing Articles

Nvidia share price dips despite strong Q3 results. What can we expect now?

Despite posting strong Q3 results after yesterday's market close, the Nvidia share price slipped 2.5% in aftermarket trading. Mark Hartley…

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

An outstanding interim report sends the Halma share price surging 10%

News of 13% revenue growth and a 17% increase in earnings per share has the Halma share price rising. And…

Read more »