I’d buy 5,505 shares of Legal & General for £1,200 a year in passive income
Neil Woodford may be gone but there are still excellent shares available for investors looking to generate passive income
Neil Woodford may have fallen from grace but there are still plenty of great opportunities for investors looking to generate passive income through dividends. One company that I believe is particularly well-placed to deliver strong dividend growth in the coming years is Legal & General (L&G).
Here's why I'd buy 5,505 shares of Legal & General
There are several reasons why I believe L&G is a good investment for income investors.
- Strong track record of dividend growth: L&G has a long history of increasing its dividend payments, with the company having increased its dividend every year for the past 47 years. This shows that the company is committed to returning cash to shareholders and that it has the financial实力 to do so. This is because L&G is a life insurance and asset management company, which means it collects premiums from customers and invests them to generate returns. This provides the company with a steady stream of income that it can use to pay dividends.
- Diversified business: L&G is a diversified business, with operations in a number of different sectors including life insurance, pensions, asset management, and general insurance. This means that the company is not reliant on any one sector for its income, which provides it with a degree of resilience against economic headwinds. As such, the company was able to navigate the COVID-19 pandemic without too much difficulty, although its profits did fall.
- Strong financial position: L&G has a strong financial position, with a high level of capital reserves. This means that the company is well-placed to withstand any future economic shocks and continue to pay dividends to shareholders. L&G's earnings per share (EPS) increased from £1.07 in 2020 to £1.25 in 2021.
- Attractive dividend yield: L&G currently offers a dividend yield of around 6.2%, which is significantly higher than the average yield on the FTSE 100 index. This makes L&G an attractive option for investors who are looking for income. L&G's yield has been relatively stable over the last five years, fluctuating between 5.5% and 5.8%.
- Discount to fair value: L&G's shares are currently trading at a discount to my fair value estimate of £220 per share. This means that I believe there is potential for capital appreciation as well as income from dividends. The shares currently trade at around £200.
Overall, I believe that L&G is a high-quality company with a strong track record of dividend growth, a diversified business, and a strong financial position. I believe that the company's shares are currently undervalued and offer investors the potential for both income and capital appreciation.
Of course, no investment is without risk. However, I believe that the risks associated with investing in L&G are outweighed by the potential rewards.
If you are looking for a quality income stock, I believe that L&G is a good option to consider.
Please note that I am not a financial advisor and this article should not be taken as financial advice.
