Image Alt

The Investing Box

  /  Editor's Pick   /  9% yield! My once-in-a-decade chance to buy this dirt cheap FTSE 100 dividend stock

9% yield! My once-in-a-decade chance to buy this dirt cheap FTSE 100 dividend stock

Young black colleagues high-fiving each other at work

There are loads of great income shares on the FTSE 100 right now, but one dividend stock jumps out at me. This household name blue-chip combines a blockbuster yield with a dirt-cheap valuation, and the risks seem relatively limited too.

I’m talking about insurer, pension manager and tracker fund specialist Legal & General Group (LSE: LGEN). It was one of the first stocks I bought after transferring three legacy pensions into a self-invested personal pension plan (SIPP) in May and now I want to buy more.

After a bright start L&G shares have slid along with the rest of the FTSE 100. So far I’m down 4.22% but that’s neither here nor there. I plan to hold the stock for a decade at least, and ideally longer, giving it plenty of time to come good. 

I’m now ready to buy more

The big attraction is the dividend. L&G shares are forecast to yield a bumper 9.31% in 2023, and 9.78% in 2024. At that rate I’d double my money in around eight years, even if the share price didn’t move at all.

Over such a lengthy period, I would expect share price growth on top. However, I’m the first to acknowledge that L&G hasn’t done that so well in that department lately. The share price is down 14.28% over five years and 19.25% in the last 12 months.

It’s trading at similar levels to a decade ago with a rock-bottom valuation of just 5.7 times earnings. It looks like an unmissable time to buy it.

L&G is still making money having just reported first-half operating profits of £941m. That’s down from last year’s £958m but its Solvency II coverage ratio climbed from 212% to a rock solid 230%, with surplus funds of £9.2bn.

This is my chance

The board hiked the interim dividend to 5.71p in line with its strategy of delivering 5% annual dividend growth until 2024. Shareholder payouts have grown steadily for the last decade (aside from a freeze in 2020 due to the pandemic). As my table shows, the growth looks set to continue.

2018 2019 2020 2021 2022 2023* 2024* 2025*
Dividend per share 16.42p 17.57p 17.57p 18.45p 19.37p 20.33p 21.35p 22.51p
*Forecast dividend per share.

Last year’s stock market volatility hit both profits and assets under management at L&G’s investment arm LGIM. Things have stabilised so far in 2023 but that may change. Given its exposure to the stock market’s fortunes, L&G will be on the frontline if markets crash as many now fear. No crash lasts forever and I’d take advantage of any share price dip to average down on my stake.

As a diversified financial services company, L&G has some ballast due to rising annuity sales and progress in the US protection and pension risk transfer market.

L&G goes ex-dividend on 24 August. I’d like to top up my stake before then to enjoy a bumper payment on 26 September. This is a brilliant chance of locking into a yield of almost 10% a year that really looks like it might be sustainable. No dividend is guaranteed – nothing is when it comes to investing – but L&G’s looks more reliable than most.

The post 9% yield! My once-in-a-decade chance to buy this dirt cheap FTSE 100 dividend stock appeared first on The Motley Fool UK.

Should you invest £1,000 in Legal & General 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 Legal & General made the list?

See the 6 stocks

setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);

More reading

  • These 2 UK dividend shares look cheap! Here’s why I’d buy
  • 5 reasons why Legal & General shares are too cheap
  • Falling UK shares could be a great opportunity to boost wealth!
  • How these 2 LSE stocks could make me a second income of £1,780!
  • I’d buy these 2 FTSE 100 stocks in August

Harvey Jones has positions in Legal & General Group Plc. 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.