All things being equal, the Legal & General (LSE:LGEN) share price should fall tomorrow (24 April) by the value of its final dividend (15.36p). That’s because it goes ex-dividend. This the day on which buyers of the stock are no longer entitled to receive the payout when it’s sent on 5 June. Instead, it will be credited to the seller’s bank account.
But I’ve looked back over the past five years, to see if there are any clues at to how quickly the share price might recover to the level it was at before going ex-dividend. And as the table below shows, it’s a very mixed picture.
| Financial year | Final dividend (pence) | Ex-dividend date | Days to recover |
|---|---|---|---|
| 2019 | 12.64 | 23.4.20 | 5 |
| 2020 | 12.64 | 15.4.21 | 200 |
| 2021 | 13.27 | 21.4.22 | 111 |
| 2022 | 13.93 | 27.4.23 | 272 |
| 2023 | 14.63 | 25.4.24 | 14 |
| 2024 | 15.36 | 24.4.25 | ? |
For example, in respect of its 2019 financial year, the stock took only five days to bounce back. This is almost like having your cake and eating it. Not only did shareholders receive the dividend of 12.64p but the capital value of their investment was restored in less than a week.
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In contrast, for the 2022 payout, it took 272 days to recover.
And this tells me that it’s impossible to predict how the share price will react over the coming weeks and months. Indeed, there’s no certainty that it will return to its pre-dividend level. Although, I think it’s safe to assume that it will fall tomorrow.
An attractive return
However, my research has reminded me how impressive the group’s payout has been in recent years. As well as a final dividend, it also makes an interim payout. For the past five years, this has been equal to 39% of the final amount.
The stock’s currently (22 April) yielding a very impressive 8.6%. Although there are no guarantees, this is far higher than any return currently available on a high-interest savings account or UK government bonds.
The group last cut its dividend during the 2007-08 financial crisis. Since then, it’s been increased every year, except during the pandemic, when it remained unchanged. And the directors have promised to raise it by 2% a year from 2025 to 2027.
Pros and cons
But the company faces similar challenges to others who have invested in the stock market and elsewhere. To help fund its obligations to pensioners, Legal & General invests in equities, debt securities, and property. At 31 December 2020, it had £495.6bn of these on its balance sheet.
Within this figure, there was £201.3bn of shares. And I’m sure the recent market turmoil has affected the value of these.
It also operates in a highly competitive industry with many of its rivals offering incentives to switch.
But with the state retirement age likely to increase further, it could see an increase in demand for its pension products. Also, its pension transfer division is performing well. At the time of reporting its 2024 results, the group said it was pricing £17bn of new deals and had visibility on a further £27bn.
Its balance sheet is also healthy. It has a solvency II ratio of 232%, which means it’s holding more than twice the level of reserves that it’s legally obliged to.
In my opinion, all these factors will help underpin the anticipated growth in its dividend. And for this reason, income investors could consider adding the stock to their portfolios.
