Legal & General - LGEN

Weeks summary

Stock picked: Legal & General

Ticker: LGEN

Dividend yield: 9.87%

Payout ratio: 85.79%

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This weeks stock


What does Legal & General do?


Legal and General ticker LGEN comes under the financial services sector, sub sector insurances - life. LGEN provide many products and services world wide. They operate in 4 segments, Legal & General retirement (LGR), Legal & General investment management (LGIM), Legal & general capital (LGC) and Legal & General insurance (LGI).


LGR segment offer many products like annuity contracts which provide a guaranteed income over a specific period of time, lifetime mortgages and lifetime care plans. LGIM provides index fund management for example active fixed income funds, real estate funds, corporate pension schemes and many more products.


LGI segment provides products such as health insurance, disability, critical illness and accident cover. They also deal in real estate investments as well as trading, commercial loans, venture capital.


Fundimentals:

Dividend Yield: 9.87%

Payout ratio: 85.79%

Profit margin: 8.18%

Return on assets: 0.19%

Return on equity: 13.17%

P/E ratio (price to earnings): 5.83

Adjusted EPS: 30.53

EPS (Earning per share) Growth: 2%

BETA: 1.26

Cash: 21.7B

Debt: 5.85B

EBITDA: 1.75B

Stock breakdown:


Recently LGEN has been reaching a dividend yield of almost 10%. This is due to the falling share price at current, this is visible with the stock showing a P/E ratio of 5.83.


The dividend payout ratio hasn’t changed as they haven’t increased nor decreased their dividend. This is a red flag to me as it could be potentially justified while the stock price is so low. Having a payout ratio of over 60% for me brings up red flags as they are using the majority of their profits to cover dividend payments.


With a 2% EPS growth it doesn’t show much growth as a stock, coupled with the dividend payout we can confirm this is solidly a dividend income stock.


The BETA of LGEN is currently 1.26 which shows this stock is much more volatile in share price compared to the stock market, this means your investment will increase and decrease wildly.


It is nice to see a company hold so much cash compared to debt, with 4x as much cash as debt. Looking at this from another view we get another worrying picture.

If you look at the assets compared to liabilities we can see that its at 98% - £560B Assets / £551B Liabilities.

What you do have to remember is that this is an insurance company and this is normal for the sector! Do not be alarmed, the other way to look at this is that if all insurance claims came in at once they would be able to cover all of them at once (though there would be no company left), taking that into account we know that insurance brokers are revolving.


Some good news from LGEN is that a chairman of the board has recently done some insider buying and bought £74,000 worth of shares, increasing their holdings by 21%. Normal insider trading is viewed as a vote of confidence. [1]


Legal & General have recently launched a new kind of mortgage called retirement interest-only (RIO) mortgage which allows people to borrow up to 60% of their homes value, only on properties with a minimum value of £100,000. This will be an interesting new product in LGENS arsenal. [2]


Legal and General is a bi annual dividend paying stock. They pay their interim dividend in September and the final dividend in June. The final dividend payment is the larger of the two. [3]

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Dividends received

This week we received 3 dividend this week totalling £0.35

WM @ £0.04

UNH @ £0.04

LGEN @ £0.27


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General account summary


Now the challenge portfolio has been moved over into the ISA is quantity of dividends will be reduced dramatically. This is due to focusing on larger payments from a select few stocks and creating a legitimate portfolio instead of one to show off. This has been constructed in such a way that it is at least two dividend payments a month. We chose 8 stocks with each having £50 invested. This will mean the size of the dividends will be much larger than the £0.04 we are used to.


After taking a week off from investing regularly and working out my personal budget to make sure that if any changed were too happy that I would be able to carry this on. I found I missed investing the £5 a week and decided to invest it directly into the Pie on trading212.


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What is:

P/E ratio EPS Payout ratio BETA Dividend

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[1] Insider buying £74k worth of shares

https://simplywall.st/stocks/gb/insurance/lse-lgen/legal-general-group-shares/news/insider-buying-the-legal-general-group-plc-lonlgen-chairman-of-the-board-just-bought-21-more-shares/

[2] Retirement interest-only (RIO) mortgage

https://www.mortgagesolutions.co.uk/news/2020/09/10/legal-general-launches-rio-mortgage/

[3] LGEN dividend payout dates

https://www.dividenddata.co.uk/ex-dividend-date-search.py?searchTerm=LGEN



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