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  /  Editor's Pick   /  If I’d invested £5,000 in Legal & General shares 5 years ago, here’s how much I’d have now

If I’d invested £5,000 in Legal & General shares 5 years ago, here’s how much I’d have now

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Legal & General (LSE: LGEN) shares are a popular investment in the UK, particularly with older investors seeking income. One reason for this is that they offer a high dividend yield (it’s currently over 7%).

Has the stock been a good investment overall in recent years, though? Let’s find out by looking at how much money I’d have now if I’d bought £5k worth of shares in the financial services company five years ago.

A good investment?

On 23 November 2017, Legal & General shares closed the day at 266p. Today, however, they’re trading at 258p – about 3% lower.

This means that if I had bought £5k worth five years ago (at the closing price of 266p), my capital would now be worth about £4,850. This is ignoring trading commissions.

Of course, we also need to factor dividends into the calculations here. Given Legal & General’s high yield, the income here will have made a big difference to overall shareholder returns.

Looking at the company’s dividend history, I calculate that I would have received a total of 86.5p in dividends if I’d bought the stock five years ago. That equates to around £1,625 worth of income.

Combine the value of my share (£4,850) with the £1,625 in dividends (assuming I didn’t reinvest them) and the total comes to £6,475.

That works out at a return of about 5.3% return per year.

Better than cash savings

Is that a good return?

Well, it’s better than the return I would have received if I’d left my money in the bank. For most of the last five years, it’s been hard to find savings accounts with interest rates in excess of 1%. If I’d left my money in the bank, I’d most likely have less than £5,500 today.

It’s also a better return than I would have received from a simple Footsie tracker fund. For example, if I’d invested £5,000 in the Vanguard FTSE 100 index, I’d now have about £6,035 (ignoring fees).

However, it’s not a particularly high return. Over the last five years, plenty of other dividend stocks and dividend-focused funds have delivered significantly higher returns than Legal & General shares. For example, had I put £5,000 into the Liontrust Global Dividend fund, I’d now have around £8,020.

All things considered, a 5.3% return per year is a little underwhelming, in my view.

Takeaways

I think there are a couple of key takeaways here.

One is that high-yield stocks don’t always produce strong total returns (capital gains plus dividends). The dividends paid out by these companies can be attractive. However, high yields can be offset by share price weakness. Sometimes, investors can be better off picking lower-yielding stocks with more capital growth potential over higher-yielding stocks.

Another is that diversification is important when constructing an investment portfolio, whether the goal is growth or income. By owning a bunch of different dividend stocks and funds, and taking a global focus, I could have potentially improved my overall investment returns dramatically.

Currently, I don’t own any Legal & General shares. However, if I did, I’d certainly think about portfolio diversification.

The post If I’d invested £5,000 in Legal & General shares 5 years ago, here’s how much I’d have now appeared first on The Motley Fool UK.

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Edward Sheldon 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.