Legal & General (LSE: LGEN) shares have disappointed as a growth investment, rising just 14.5% over the past five years while the FTSE 100 climbed almost 50% over the same period.
That gap is striking, particularly given that Legal & General is a consistently popular blue-chip, regularly featuring among the top ten most bought UK stocks by retail investors.
The explanation for that enduring popularity lies almost entirely in income, with the insurer and asset manager currently offering a trailing dividend yield of 7.25%, the highest on the entire FTSE 100.
At various points over the five-year period, the yield reached as high as 10%, providing investors with a meaningful cushion against the weak share price performance.
A direct comparison with rival Aviva illustrates the shortfall clearly, with Aviva shares rising 75% over five years while still offering a trailing dividend yield of 5.5%.
Legal & General’s patchy performance comes down largely to uneven profit growth as the business works through a significant structural reshaping aimed at making the group faster and more focused.
Investors have also nursed concerns about the asset management division and whether the dividend, a central pillar of the investment case, can continue growing at a meaningful rate.
On the positive side, management has launched a record £1.2bn share buyback, signalling confidence in the balance sheet, while the dividend is expected to grow by around 2% annually from current levels.
There are risks worth considering too, including the fact that Legal & General oversees more than £1.2 trillion in assets under management, meaning a broad market downturn could damage commission income and reduce customer inflows.
To put the numbers in concrete terms, an investor who placed £12,000 into Legal & General shares on 13 August 2021 at 262p per share would have acquired approximately 4,580 shares in the company.
Based on share price growth alone, that original £12,000 would today be worth around £13,740, a modest return that does little to justify choosing the stock over a simple index tracker.
However, an investor who reinvested every dividend received over the period would now be sitting on a holding worth roughly £19,500, representing a total return of approximately 63% over five years.
That figure is more competitive, though it remains broadly similar to the total return delivered by the FTSE 100 itself when its 3.1% average yield is factored in with dividends reinvested.
For income-focused investors, Legal & General still presents a compelling case, but many will be hoping the share price begins to close the gap on Aviva as market cycles shift and the restructuring programme starts to bear fruit.