Legal & General (LSE: LGEN) shares have taken a hit recently. Only a few weeks ago, they were trading above 260p. Today, however, they can be snapped up for 230p.
For income investors, I think this share price fall has presented an incredible opportunity. Because right now, the shares are sporting a huge dividend yield.
Enormous yields on offer
Legal & General has put together a strong dividend track record over the last decade and for 2022, it declared total dividends of 19.4p per share.
That payout translated to a high yield before the recent share price weakness. However, after the share price fall, the yield is enormous. At today’s share price, the 19.4p payout equates to a yield of approximately 8.4%. That’s more than twice the average yield across the FTSE 100 index.
It gets better though. Looking ahead, Legal & General is expected to continue increasing its annual payout (the company is aiming for 5% dividend growth per year in the next few years).
Currently, analysts expect the group to pay out dividends of 20.4p per share for 2023 and 21.4p per share for 2024. Crunching the numbers, those estimated payouts equate to yields of 8.9% and 9.3%. These kinds of yields are hard to ignore, in my view.
For those seeking income, there appears to be a real opportunity here.
The board’s intention for the future is to maintain its progressive dividend policy, reflecting the group’s expected medium-term underlying business growth, including measurement of capital generation and adjusted operating profit.
Legal & General’s 2022 results
The risks to consider
Now of course, there are risks to be aware of.
One is potential losses from fixed income investments. Uncertainty here is the main reason the company’s share price has fallen recently.
Ultimately, the sharp rise in interest rates globally has resulted in many long-dated bonds being worth a lot less than they were worth previously. And this has had disastrous implications for some financial institutions (such as Silicon Valley Bank). Any losses here could impact the company’s dividend and/or its share price.
A new CEO coming is another risk to consider. After 11 years at the helm, Sir Nigel Wilson is set to step down as boss in the near future. A new chief may decide to implement an alternative capital allocation policy. For example, he or she may decide that the company is paying out too much in dividends and look to reduce the payout. There’s no guarantee that the company will continue to pay out huge, market-beating dividends.
Overall, however, I like the risk/reward skew here at present. With the shares currently trading on a price-to-earnings (P/E) ratio of just seven and offering a 8.4% dividend yield, I see a fantastic investment opportunity.
The post Legal & General shares: an incredible passive income opportunity? 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.
