Hopes of falling interest rates have lifted the FTSE 100 in recent weeks. Yet Legal & General Group (LSE:LGEN) shares have failed to ignite despite the boost that rate cuts would give to its operations.
At 246.9p per share, the financial services giant has actually fallen in value since the start of the second quarter. The Footsie, on the other hand, is up by low-to-single-digit percentages over the period.
This means that — on paper at least — Legal & General’s share price still looks like one of the London stock market’s greatest bargains. Here’s why.
All-round value
Firstly, the company looks dirt cheap when based on earnings forecasts for the current year.
Today, it trades on a forward price-to-earnings (P/E) ratio of 10.2 times, below the FTSE 100 average of 11 times. But what really grabs my attention is its rock-bottom price-to-earnings growth (PEG) ratio of 0.1.
Any reading below 1 indicates that a share is undervalued relative to its predicted growth trajectory.
On top of this, the firm’s dividend yield for 2024 provides a spectacular sweetener. At 8.6%, this is more than twice the UK blue-chip average of 3.5%.
Sector value
It’s important to remember that the FTSE 100 consists of companies spanning a wide variety of sectors. For this reason, it’s also a good idea to compare how Legal & General stacks up to many of its industry rivals in terms of value.
| Company | Forward P/E ratio | Forward dividend yield |
|---|---|---|
| Aviva | 11.3 times | 7.4% |
| Prudential | 10.5 times | 2.3% |
| Allianz | 10.6 times | 5.7% |
| Aegon | 8.1 times | 5.5% |
| AXA | 9.5 times | 6.4% |
| MetLife | 8.3 times | 2.9% |
| Average | 9.7 times | 5% |
As we can see, the Footsie firm’s reputation as a value stock becomes more blurred based on the industry average.
Its dividend yield comfortably beats its peer group average by a good three-and-a-half percentage points.
It offers less impressive value based on earnings however. Its P/E ratio of 10.2 times is above the industry average. However, the margin between this and the broader industry’s corresponding readout is pretty thin.
Here’s my take
On balance, I believe Legal & General shares are very attractive at current prices. It’s why I’ve been recently buying them for my Self-Invested Personal Pension (SIPP).
I was especially attracted by the company’s gigantic dividend yields. The passive income streams I might receive could go a long way to supercharging my long-term wealth.
Any dividend income I receive would be ploughed back into the market to buy even more stocks. This snowball effect (known as compounding) can significantly grow the size of my portfolio over time.
And by buying Legal & General shares, I’d likely have more to spend than if I’d invested in lower-yield companies. I’m confident that dividends from the business will rise steadily over time too.
The financial services giant has to overcome heavy competitive pressures to grow profits. But Legal & General has a great track record on this front, helped by its substantial brand power and wide range of industry-leading products.
This is a top value share I plan to hold for the long haul.
This post was originally published on Motley Fool
