8.8% yield! Is the Legal & General share price a brilliant opportunity to make passive income?

02/07/2024

Young female business analyst looking at a graph chart while working from home

The Legal & General (LSE: LGEN) share price is currently 226.7p. That’s 8.8% lower than it was at the offset of the year. It’s 17.8% less than it was five years ago.

That doesn’t make great reading for long-term shareholders. Especially when you consider that the FTSE 100 has been on the rise this year. But for potential investors, or shareholders like me who are considering adding to their position, where does that leave us?

Based on its performance in recent times, Legal & General may seem like a stock that should be avoided. But there are positives to a falling share price.

One of the best

One is a rising dividend yield. And as far as yields on the Footsie go, Legal & General’s one of the best. At a whopping 8.8%, that places it as the fifth highest on the index.

It’s only topped by Vodafone, Phoenix Group Holdings, British American Tobacco, and M&G. Vodafone is cutting its yield in half next year, which makes Legal & General’s yield look even more impressive.

Sustainability

But what’s the point of a high yield if there’s not the potential of it being sustained, or hopefully rising, in the times to come? Dividends are never, ever guaranteed, so doing proper due diligence and investigating whether a yield looks sustainable is key.

Luckily, with Legal & General, I reckon it is. Its yield has been on a steady rise over the last decade. Its cumulative dividend plan, set to end this year, is further proof that its management is placing emphasis on rewarding shareholders.

Valuation

Its falling share price also means a more attractive valuation. Today, Legal & General trades on a forward price-to-earnings (P/E) ratio of 8.6. That’s below the Footsie average (11). Taking a look at its industry peers, it’s also cheaper than Aviva, which trades on a forward P/E of 11.7, as well as AIG, which trades on 10.7.

Not without risks

Its cheap valuation comes with risks. For example, the stock’s cyclical. Its performance can often go through peaks and troughs as the economy goes through ups and downs. We’re dealing with lots of economic uncertainty at the moment, hence its cheaper price.

Unfortunately, I’m expecting this downward trajectory to continue in the months ahead. And that’s going to have a direct impact on Legal & General. Its assets under management will most likely continue to wobble.

I’m bullish

But looking past that, I’m bullish on the firm’s longer-term performance. The business has strong brand recognition and a large customer base in a growing industry. It has also recently laid out plans to boost its efficiency. Those are all things I love to see.

An opportunity

I think Legal & General offers a great opportunity to make passive income. At its current value, I also see lots of potential for share price growth in the years to come. I started to snap up shares in July last year. As I write, I’m sitting on a 4.8% paper gain.

But I’m in it for the long haul. And the opportunity to make extra income is one of the main reasons I’ll continue to buy shares with any spare cash I have. I reckon investors should consider buying it too.

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