Legal & General: One Of The Best 6.5% Yielding Blue-Chips You've Never Heard Of
Summary
- Legal & General was founded in 1836 in London and is a leading UK financial services provider, offering life insurance, pensions, retirement and investment services.
- LGGNY has $1.73 trillion in assets and $4.2 trillion in assets under management.
- LGGNY is as potential good buy right now, about 22% undervalued, and closing in on strong buy at 25% discount.
- This idea was discussed in more depth with members of my private investing community, iREIT on Alpha. Learn More »
zimmytws/iStock via Getty Images
One of the great things about stock investing is that you can look all over the world to find great opportunities.
Just a few weeks ago I was in Paris and Barcelona meeting with investors and touring trophy real estate properties.
I'm planning to travel back to Europe in January and I'm looking forward to meeting with our newest analyst, Wolf Report.
Today I plan to provide readers with an under-covered gem based in London, and as the title to this article suggests, this company is one of the best 6.5% yielding blue-chips you've never heard of... or at least me... up until now.
This article was coproduced with Dividend Sensei.
Market fear is back with a vengeance!
(Source: CNN)
In September sentiment was extremely fearful, a month later, during the market's 6% rally in October, extremely greedy, and now we're back to extreme fear.
Here's why the market is getting spooked but here's the bottom line.
Market sentiment is fickle, and it's always a market of stocks, not a stock market. Focus on the fundamentals that actually pay the bills, and not the headline-making drops from day to day.
Today REIT investors are faced with yields that, while decent at 3%, aren't exactly the stuff rich retirement dreams are made of.
But what if I told you there was a 6.5% yielding blue-chip whose management says will grow its dividends at a 3% to 6% rate over time?
What if I told you this was an A-rated company, from not one, not two, not three, but four credit rating agencies?
What if I told you that you could enjoy more than double the safe yield of most REITs, while also enjoying better long-term returns?
Investment Strategy | Yield | LT Consensus Growth | LT Consensus Total Return Potential | Long-Term Risk-Adjusted Expected Return | Long-Term Inflation And Risk-Adjusted Expected Returns |
Legal & General | 6.5% | 4.3% | 10.8% | 10.8% | 8.5% |
Legal & General (Management Guidance) | 6.5% | 8.5% | 15.0% (Same return as the last decade) | 10.5% | 8.2% |
Safe Midstream | 6.0% | 6.2% | 12.2% | 8.5% | 6.2% |
Safe Midstream + Growth | 3.3% | 8.5% | 11.8% | 8.3% | 5.9% |
LGGNY + AMZN (Analyst Consensus) | 3.3% | 13.8% | 17.0% | 11.9% | 9.6% |
REITs | 3.0% | 7.0% | 9.9% | 6.9% | 4.6% |
High-Yield | 2.7% | 11.0% | 13.7% | 9.6% | 7.2% |
Dividend Aristocrats | 2.4% | 8.9% | 11.3% | 7.9% | 5.6% |
Value | 2.1% | 12.1% | 14.2% | 10.0% | 7.6% |
60/40 Retirement Portfolio | 1.9% | 5.1% | 7.0% | 4.9% | 2.6% |
REITs + Growth | 1.8% | 8.9% | 10.6% | 7.4% | 5.1% |
High-Yield + Growth | 1.7% | 11.0% | 12.7% | 8.9% | 6.5% |
10-Year US Treasury | 1.61% | 0.0% | 1.6% | 1.6% | -0.7% |
S&P 500 | 1.4% | 8.5% | 9.9% | 6.9% | 4.6% |
Nasdaq (Growth) | 0.7% | 11.0% | 11.7% | 8.2% | 5.8% |
Chinese Tech | 0.3% | 14.0% | 14.3% | 10.0% | 7.7% |
(Source: Morningstar, FactSet Research, Ycharts)
That's exactly what UK insurance giant Legal & General (OTCPK:LGGNY) offers high-yield investors today.
So, let's take a look at the four reasons why LGGNY is one of the best 6.5% yielding blue-chips you've never heard of.
In fact, Legal & General might be just what you need to help you retire rich, and stay rich in retirement in these troubled times.
Reason One: A Quality Company Retirees Can Trust
The Dividend King's overall quality scores are based on a 220-point model that includes:
dividend safety
balance sheet strength
credit ratings
credit default swap medium-term bankruptcy risk data
short and long-term bankruptcy risk
accounting and corporate fraud risk
profitability and business model
growth consensus estimates
cost of capital
long-term risk-management scores from MSCI, Morningstar, FactSet, S&P, Reuters'/Refinitiv and Just Capital
management quality
dividend friendly corporate culture/income dependability
long-term total returns (a Ben Graham sign of quality)
analyst consensus long-term return potential
It actually includes over 1,000 metrics if you count everything factored in by 12 rating agencies we use to assess fundamental risk.
credit and risk management ratings make up 38% of the DK safety and quality model
dividend/balance sheet/risk ratings make up 79% of the DK safety and quality model
How do we know that our safety and quality model works well?
During the two worst recessions in 75 years, our safety model predicted 87% of blue-chip dividend cuts during the ultimate baptism by fire for any dividend safety model.
How does LGGNY score on one of the world's most comprehensive and accurate safety models?
Dividend Safety
Rating | Dividend Kings Safety Score (133 Point Safety Model) | Approximate Dividend Cut Risk (Average Recession) | Approximate Dividend Cut Risk In Pandemic Level Recession |
1 - unsafe | 0% to 20% | over 4% | 16+% |
2- below average | 21% to 40% | over 2% | 8% to 16% |
3 - average | 41% to 60% | 2% | 4% to 8% |
4 - safe | 61% to 80% | 1% | 2% to 4% |
5- very safe | 81% to 100% | 0.5% | 1% to 2% |
LGGNY | 61% | 1.00% | 4.00% |
LGGNY tends to payout 55%-60% of earnings as dividends vs 50% safety guideline
this is why its safety is at the low end of safe
the modest increase in CDS spreads in the last 3 months is another reason the safety score is at the low end of safe
Long-Term Dependability
Company | DK Long-Term Dependability Score | Interpretation | Points |
Non-Dependable Companies | 18% or below | Poor Dependability | 1 |
Low Dependability Companies | 19% to 57% | Below-Average Dependability | 2 |
S&P 500/Industry Average | 58% (58% to 67% range) | Average Dependability | 3 |
Above-Average | 68% to 77% | Very Dependable | 4 |
Very Good | 78% or higher | Exceptional Dependability | 5 |
LGGNY | 78% | Exceptional Dependability | 5 |
Overall Quality
LGGNY | Final Score | Rating |
Safety | 61% | 4/5 safe |
Business Model | 40% | 2/3 |
Dependability | 78% | 5/5 exceptional |
Total | 66% | 11/13 SWAN |
LGGNY: 455th Highest Quality Master List Company (Out of 507) = 10th Percentile
(Source: DK Safety & Quality Tool) updated daily, sorted by overall quality
The DK 500 Master List includes the world's highest quality companies including:
All dividend champions
All dividend aristocrats
All dividend kings
All global aristocrats (such as BTI, ENB, and NVS)
All 13/13 Ultra Swans (as close to perfect quality as exists on Wall Street)
42 of the world's best growth stocks (on its way to 50)
LGGNY's 66% quality score means its similar in quality to such blue-chips as
CVS Health (CVS)
Oracle (ORCL)
Bristol Myers Squibb (BMY)
McDonald's (MCD) - dividend aristocrat
Broadcom (AVGO)
Even being near the bottom of the DK Master List makes LGGNY a high-quality SWAN retirees can trust and here's why.
Legal & General was founded in 1836 in London. That makes it 185 years old = a business culture built to last. In fact, LGGNY will likely outlive us all.
72% of LGGNY's revenue is based on retirement services and asset management.
(Source: investor presentation)
LGGNY has $1.73 trillion in assets and $4.2 trillion in assets under management.
(Source: investor presentation)
(Source: investor presentation)
LGGNY's business growth is focused on various secular growth trends such as alternative investments and hard assets, such as infrastructure.
There are six major secular mega-trends LGGNY is focused on.
(Source: investor presentation)
For example, according to the IEA, climate change mitigation is a $130 trillion investment opportunity through 2050.
(Source: investor presentation)
Management says it can grow at 8.5% per year including 3% to 6% dividend growth that is REIT-like, though with a much more attractive yield.
(Source: investor presentation)
Despite the pandemic, management is confident it can still achieve those goals.
(Source: investor presentation)
Historically, management is very good at achieving or even exceeding its guidance, which is why it's been crushing its peers for the last decade.
(Source: investor presentation)
The company's risk management is impeccable, as we'll see in detail in the risk section.
(Source: investor presentation)
But here's the proof that they know how to manage their investment portfolio in a most conservative manner. While the average investment-grade bond portfolio saw 0.26% defaults in the last decade, LGGNY hasn't had a bond default since the Financial Crisis.
(Source: investor presentation)
LGC is targeting 10% to 12% long-term returns on its alternative asset portfolio, which is the growth engine for the company.
vs 9.9% to 11.7% CAGR consensus returns for the S&P 500, dividend aristocrats, and the Nasdaq
(Source: investor presentation)
Alternative assets, like real estate, allow LGGNY to earn 11% returns on its float compared to 2.5% for traditional bonds.
(Source: investor presentation)
LGC's alternative asset profits have grown at 23% annually over the past five years (2.8X).
(Source: investor presentation)
And LGGNY is starting to diversify outside of its home market, now targeting US expansion that could generate decades of steady dividend growth.
(Source: investor presentation)
(Source: investor presentation)
Bottom Line: Legal & General is like a combination of Berkshire (BRK.B) and Brookfield Asset Management (BAM) except it yields a safe 6.5%.
LGGNY Credit Ratings
Rating Agency | Credit Rating | 30-Year Default/Bankruptcy Risk | Chance of Losing 100% Of Your Investment 1 In |
S&P | A stable | 0.66% | 151.5 |
Fitch | A+ stable | 0.60% | 166.7 |
Moody's | A2 (A equivalent) stable | 0.66% | 151.5 |
AmBest | A stable | 0.66% | 151.5 |
Consensus | A stable | 0.65% | 155.0 |
(Sources: S&P, Fitch, Moody's, AMBest)
We have four credit rating agencies all confirming a very conservative and disciplined balance sheet.
LGGNY Bond Profile
(Source: FactSet Research)
$1.331 billion liquidity
no debt maturing until 2024 and no significant debt until after 2031
the bond market, the "smart money" on Wall Street is confident enough to lend to LGGNY for 43 years at 3.6%
LGGNY Credit Default SWAP Spreads
(Source: FactSet Research Terminal)
Credit default swaps are insurance against bond defaults, and thus represent a real-time bond market estimate of a company's short and medium-term bankruptcy risk.
CDS spreads have widened a bit in the last three months though the bond market is still estimating that LGGNY's fundamental risk is very low for the next decade.
the modest increase in CDS spreads in the last 3 months is another reason the safety score is at the low end of safe
In the last month, the bond market has grown more confident in this company's fundamentals.
analysts, rating agencies, and the bond market all agree the thesis remains intact
Profitability: Wall Street's Favorite Proxy For Quality
(Source: Gurufocus Premium)
Low-interest rates in Europe have hurt LGGNY's profitability compared to US peers.
LGGNY Trailing 12-Month Profitability Vs Peers
Metric | Industry Percentile | Major Insurance Companies More Profitable Than LGGNY (Out Of 501) |
Net Margin | 39.64 | 302 |
Return On Equity | 90.52 | 47 |
Return On Assets | 24.35 | 379 |
Average | 51.50 | 243 |
(Source: Gurufocus Premium)
LGGNY's profitability has improved in the last year and is generally stable over time.
LGGNY Margin Consensus Forecast
Year | FCF Margin | EBIT (Operating) Margin | Net Margin |
2020 | 3.9% | 16.4% | 12.9% |
2021 | 5.9% | 19.9% | 17.3% |
2022 | 5.9% | 19.5% | 15.8% |
2023 | 6.1% | 20.4% | 16.0% |
2024 | NA | 17.9% | 13.9% |
2025 | NA | 19.9% | 14.9% |
Annualized Growth | 15.38% | 3.99% | 2.92% |
(Source: FactSet Research Terminal)
In the next few years that profitability is expected to keep rising.
LGGNY Medium-Term Growth Consensus Forecast
Year | Sales | Free Cash Flow | EBIT (Operating Income) | Net Income |
2020 | $17,322 | $683 | $2,838 | $2,234 |
2021 | $15,881 | $936 | $3,166 | $2,750 |
2022 | $17,434 | $1,036 | $3,393 | $2,761 |
2023 | $18,558 | $1,124 | $3,785 | $2,965 |
2024 | $20,593 | NA | $3,691 | $2,856 |
2025 | $21,156 | NA | $4,215 | $3,151 |
Annualized Growth | 4.08% | 18.06% | 8.23% | 7.12% |
(Source: FactSet Research Terminal)
Coming out of the pandemic, analysts expect very robust growth, especially in free cash flows.
Metric | 2020 Growth | 2021 Growth Consensus | 2022 Growth Consensus | 2023 Growth Consensus | 2024 Growth Consensus | 2025 Growth Consensus |
Sales | 8% | -8% | 10% | 7% | 14% | 3% |
Dividend | 8% | 8% | 5% | 4% | 7% | 3% (14-Year Growth Streak) |
Earnings | -25% | 53% | 6% | 5% | 3% | 2% |
Book Value | 9% | 12% | 8% | 8% | 4% | 8% |
(Source: FAST Graphs, FactSet Research)
By 2025 the dividend growth rate is expected to hit 14-years.
LGGNY Dividend Growth Consensus Forecast
Year | Dividend Consensus | EPS/share Consensus | Payout Ratio | Retained (Post-Dividend) Earnings | Buyback Potential |
2021 | $1.25 | $2.19 | 57.1% | $1,122 | 6.52% |
2022 | $1.31 | $2.30 | 57.0% | $1,182 | 6.87% |
2023 | $1.37 | $2.47 | 55.5% | $1,313 | 7.63% |
2024 | $1.46 | $2.55 | 57.3% | $1,301 | 7.56% |
2025 | $1.46 | $2.61 | 55.9% | $1,373 | 7.97% |
Total 2021 Through 2025 | $6.85 | $12.12 | 56.5% | $6,292.38 | 36.55% |
Annualized Rate | 3.96% | 4.48% | -0.50% | 5.17% | 5.17% |
(Source: FactSet Research Terminal)
50% is the safety guideline for dividends according to rating agencies.
LGNNY tends to run a bit hot but not at dangerous levels.
We announced new dividend guidance in March 2016. The Board has adopted a progressive dividend policy going forward, reflecting the group's medium-term underlying business growth, including net cash generation and operating earnings. This policy was reiterated at the November 2020 Capital Markets Event. - Investor relations
Progressive dividend policy = dividends track earnings over time
If earnings fall, the dividend doesn't get cut.
Basically, a dividend ratchet where dividends only go up or stay flat if a given year's results are especially weak.
The company's $6.3 billion in consensus retained earnings is enough to buy back 37% of shares at a rate of 8% per year if management wanted to.
LGGNY historically doesn't buy back shares except during the Great Recession when its valuation fell to the lowest levels since the Great Depression.
Basically, if you're looking for a way to achieve some foreign diversification while also enjoying one of the safest 6.5% yields on Wall Street, LGGNY is a great place to look.
Reason Two: A Decades-Long Growth Runway To Drive Dependable Dividend Growth
Remember that LGGNY has six secular growth catalysts that management thinks can keep delivering about 8.5% long-term growth. The same growth rate of the last decade.
LGGNY Long-Term Growth Outlook
(Source: FactSet Research Terminal)
Analysts are a bit more conservative estimating a 4.0% to 4.3% CAGR growth consensus range compared to 8% to 9% CAGR management guidance.
Smoothing for outliers historical analyst margins of error are 10% to the downside and 20% to the upside.
That creates a 3% to 6% CAGR margin-of-error adjusted consensus growth range which is exactly what management says income investors should expect as far as dividend growth.
(Source: FAST Graphs, FactSet Research)
Analysts expect LGGNY to keep growing at the same rate as it has for the last 18 years.
But perhaps the most attractive reason to consider Legal & General is the valuation.
Reason Three: An Attractive Bargain In Today's Overvalued Market
(Source: FAST Graphs, FactSet Research)
Since the financial crisis, LGGNY has traded between 10.5 and 12X earnings.
This indicates a 90% statistical probability that this range represents intrinsic value.
Metric | Historical Fair Value Multiples (13-Years) | 2020 | 2021 | 2022 | 2023 | 2024 | 12-Month Forward Fair Value |
13-Year Median P/BV | 2.03 | $22.49 | NA | NA | $29.58 | $30.69 | |
5-Year Average Yield | 6.36% | $19.18 | NA | NA | $21.54 | $23.11 | |
13-Year Median Yield | 5.13% | $23.78 | $24.35 | $24.35 | $26.71 | $28.65 | |
Earnings | 11.04 | $15.23 | $23.30 | $24.66 | $25.95 | $28.26 | |
Average | $19.58 | $23.81 | $24.50 | $25.61 | $27.37 | $24.45 | |
Current Price | $19.26 | ||||||
Discount To Fair Value | 1.63% | 19.12% | 21.40% | 24.78% | 29.64% | 21.22% | |
Upside To Fair Value (NOT Including Dividends) | 1.66% | 23.63% | 27.22% | 32.95% | 42.13% | 26.94% (33% including dividend) | |
2021 EPS | 2022 EPS | 2021 Weighted EPS | 2022 Weighted EPS | 12-Month Forward PE | 12-Month Average Fair Value Forward PE | Current Forward PE | |
$2.11 | $2.23 | $0.16 | $2.06 | $2.22 | 11.0 | 8.7 |
Today LGGNY is trading at 8.7X forward earnings, pricing in just 0.1% long-term growth according to the Graham/Dodd fair value formula.
LGGNY is basically an anti-bubble stock, priced for now growth while analysts expect 3% to 6% and management says to expect 8% to 9%.
Analyst Median 12-Month Price Target | Morningstar Fair Value Estimate |
$22.54 | $21.80 (Quant model, 9.8 PE) |
Discount To Price Target (Not A Fair Value Estimate) | Discount To Fair Value |
14.37% | 11.47% |
Upside To Price Target (Not Including Dividend) | Upside To Fair Value (Not Including Dividend) |
16.79% | 12.95% |
12-Month Median Total Return Price (Including Dividend) | Fair Value + 12-Month Dividend |
$23.79 | $23.05 |
Discount To Total Price Target (Not A Fair Value Estimate) | Discount To Fair Value + 12-Month Dividend |
18.87% | 16.27% |
Upside To Price Target ( Including Dividend) | Upside To Fair Value + Dividend |
23.26% | 19.42% |
Analysts are very bullish on LGGNY, expecting a 23% gain in the next year.
We don't actually care about 12-month price targets, which never have any basis in our recommendations.
That's double what analysts expect from the S&P 500.
We don't actually care about 12-month price targets, which never have any basis in our recommendations.
Time Frame (Years) | Total Returns Explained By Fundamentals/Valuations |
1 Day | 0.02% |
1 month | 0.4% |
3 month | 1.25% |
6 months | 2.5% |
1 | 5% |
2 | 16% |
3 | 25% |
4 | 33% |
5 | 41% |
6 | 49% |
7 | 57% |
8 | 66% |
9 | 74% |
10 | 82% |
11+ | 90% to 91% |
(Sources: DK S&P 500 Valuation And Total Return Potential Tool, JPMorgan, Bank of America, Princeton, RIA)
over 12 months luck is 20X as powerful as fundamentals
over 11+ years fundamentals are 11X as powerful as luck
What we care about is whether or not LGGNY is compensating us sufficiently for its risk profile.
Rating | Margin Of Safety For 11/13 SWAN Quality Companies | 2021 Price | 2022 Price | 12-Month Forward Fair Value |
Potentially Reasonable Buy | 0% | $23.81 | $24.50 | $24.45 |
Potentially Good Buy | 15% | $20.24 | $20.83 | $20.78 |
Potentially Strong Buy | 25% | $17.86 | $18.38 | $18.34 |
Potentially Very Strong Buy | 35% | $13.16 | $15.93 | $15.89 |
Potentially Ultra-Value Buy | 45% | $13.10 | $13.48 | $13.45 |
Currently | $19.16 | 19.54% | 21.80% | 21.63% |
Upside To Fair Value (Not Including Dividends) | 24.28% | 27.88% | 27.61% |
LGGNY is a potentially good buy for anyone comfortable with its risk profile and is not far from becoming a potentially strong buy and here's why.
Reason Four: It Could Double Your Money In Five Years
For context, here's the return potential of the 26% overvalued S&P 500.
S&P 500 2023 Consensus Total Return Potential
(Source: FAST Graphs, FactSet Research)
S&P 500 2026 Consensus Total Return Potential
(Source: FAST Graphs, FactSet Research)
Analysts expect the S&P 500 to deliver about 24% total returns over the next five years.
Year | Upside Potential By End of That Year | Consensus CAGR Return Potential By End of That Year | Probability-Weighted Return (Annualized) | Inflation And Risk-Adjusted Expected Returns |
2021 | -25.47% | -94.07% | -70.55% | -73.47% |
2022 | -17.81% | -16.28% | -12.21% | -15.13% |
2023 | -8.93% | -4.35% | -3.26% | -6.18% |
2024 | 0.17% | 0.05% | 0.04% | -2.88% |
2025 | 10.04% | 2.36% | 1.77% | -1.15% |
2026 | 24.37% | 4.38% | 3.33% | 0.41% |
(Source: DK S&P 500 Valuation And Total Return Tool) updated weekly
Adjusted for inflation, the risk-expected returns of the S&P 500 are near zero for the next five years.
Aristocrats are expected to deliver about 2.4% yield + 8.9% growth -2.3% valuation drag = 9.0% CAGR returns over the next five years = 3.4% CAGR inflation and risk-adjusted expected return.
And here's what investors buying LGNNY today can reasonably expect.
5-year consensus return potential range: 12% to 17% CAGR
LGGNY 2023 Consensus Total Return Potential
(Source: FAST Graphs, FactSet Research)
LGGNY 2026 Consensus Total Return Potential
(Source: FAST Graphs, FactSet Research)
Over the next five years, analysts expect 24% returns from the S&P 500 and potentially 105% from LGGNY, 4.4X better consensus return potential.
LGGNY Investment Decision Score
Ticker | LGGNY | DK Quality Rating | 11 | 66% | Investment Grade | A+ |
Sector | Finance | Safety | 4 | 61% | Investment Score | 100% |
Industry | Dependability | 5 | 78% | 5-Year Dividend Return | 37.60% | |
Sub-Industry | Business Model | 2 | Today's 5+ Year Risk-Adjusted Expected Return | 11.00% | ||
SWAN, Phoenix, Strong ESG | ||||||
Goal | Scores | Scale | Interpretation | |||
Valuation | 4 | Good Buy | LGGNY's 21.63% discount to fair value earns it a 4-of-4 score for valuation timeliness | |||
Preservation of Capital | 7 | Excellent | LGGNY's credit rating of A implies a 0.66% chance of bankruptcy risk and earns it a 7-of-7 score for Preservation of Capital | |||
Return of Capital | 10 | Exceptional | LGGNY's 37.60% vs. the S&P's 8.56% 5-year potential for return via dividends earns it a 10-of-10 Return of Capital score | |||
Return on Capital | 10 | Exceptional | LGGNY's 11.00% vs. the S&P's 3.33% 5-year risk-adjusted expected return (RAER) earns it a 10-of-10 Return on Capital score | |||
Total Score | 31 | Max score of 31 | S&P's Score | |||
Investment Score | 100% | Exceptional | 73/100 = C(Market Average) | |||
Investment Letter Grade | A+ | |||||
(Source: DK Automated Investment Decision Tool)
LGGNY is as close to a perfect high-yield blue-chip as you can buy in today's overvalued market.
LGGNY Total Returns Since 2011
(Source: Portfolio Visualizer)
LGGNY has delivered 15% returns in the last decade and management says it can continue doing so.
When facing a potential lost decade due to a stock market bubble, a 6.5% yielding anti-bubble blue-chip could be just the answer to your income prayer.
LGGNY VS S&P 500 Vs Aristocrats Inflation-Adjusted Long-Term Return Forecast: $1,000 Investment
the bond market is pricing in 2.35% inflation for the next 30 years
2.9% for the next 5 years
Time Frame (Years) | 7.55% CAGR Inflation-Adjusted S&P Consensus | 8.85% Inflation-Adjusted Aristocrat Consensus | 8.45% CAGR LGGNY consensus | Difference Between LGGNY And S&P |
5 | $1,438.97 | $1,528.07 | $1,500.20 | $61.22 |
10 | $2,070.64 | $2,334.99 | $2,250.59 | $179.95 |
15 | $2,979.59 | $3,568.01 | $3,376.32 | $396.73 |
20 | $4,287.54 | $5,452.16 | $5,065.14 | $777.60 |
25 | $6,169.65 | $8,331.26 | $7,598.69 | $1,429.05 |
30 | $8,877.94 | $12,730.72 | $11,399.52 | $2,521.58 |
35 | $12,775.11 | $19,453.38 | $17,101.51 | $4,326.40 |
40 | $18,383.01 | $29,726.06 | $25,655.60 | $7,272.60 |
45 | $26,452.62 | $45,423.39 | $38,488.42 | $12,035.80 |
50 | $38,064.55 | $69,409.94 | $57,740.14 | $19,675.58 |
Time Frame (Years) | Ratio Aristocrats/S&P | Ratio LGGNY Vs S&P 500 |
5 | 1.06 | 1.04 |
10 | 1.13 | 1.09 |
15 | 1.20 | 1.13 |
20 | 1.27 | 1.18 |
25 | 1.35 | 1.23 |
30 | 1.43 | 1.28 |
35 | 1.52 | 1.34 |
40 | 1.62 | 1.40 |
45 | 1.72 | 1.45 |
50 | 1.82 | 1.52 |
Combining LGGNY with hyper-growth Super SWANs like Amazon can deliver safe income today, and a rich retirement tomorrow.
LGGNY +AMZN offers a safe 3.3% yield, 13.8% overall growth, 17.1% consensus return potential, and 11.9% risk-adjusted expected returns.
Investment Strategy | Yield | LT Consensus Growth | LT Consensus Total Return Potential | Long-Term Risk-Adjusted Expected Return | Long-Term Inflation And Risk-Adjusted Expected Returns |
Legal & General | 6.5% | 4.3% | 10.8% | 10.8% | 8.5% |
Legal & General (Management Guidance) | 6.5% | 8.5% | 15.0% | 10.5% | 8.2% |
Safe Midstream | 6.0% | 6.2% | 12.2% | 8.5% | 6.2% |
Safe Midstream + Growth | 3.3% | 8.5% | 11.8% | 8.3% | 5.9% |
LGGNY + AMZN | 3.3% | 13.8% | 17.0% | 11.9% | 9.6% |
LGGNY + AMZN (Management Guidance) | 3.3% | 15.9% | 19.1% | 13.4% | 11.0% |
REITs | 3.0% | 7.0% | 9.9% | 6.9% | 4.6% |
High-Yield | 2.7% | 11.0% | 13.7% | 9.6% | 7.2% |
Dividend Aristocrats | 2.4% | 8.9% | 11.3% | 7.9% | 5.6% |
Value | 2.1% | 12.1% | 14.2% | 10.0% | 7.6% |
60/40 Retirement Portfolio | 1.9% | 5.1% | 7.0% | 4.9% | 2.6% |
REITs + Growth | 1.8% | 8.9% | 10.6% | 7.4% | 5.1% |
High-Yield + Growth | 1.7% | 11.0% | 12.7% | 8.9% | 6.5% |
10-Year US Treasury | 1.61% | 0.0% | 1.6% | 1.6% | -0.7% |
S&P 500 | 1.4% | 8.5% | 9.9% | 6.9% | 4.6% |
Nasdaq (Growth) | 0.7% | 11.0% | 11.7% | 8.2% | 5.8% |
Chinese Tech | 0.3% | 14.0% | 14.3% | 10.0% | 7.7% |
(Sources: Morningstar, FactSet Research)
Higher safe yield than high-yield ETFs? Yes.
Faster growth than the Nasdaq? That's what analysts think.
Better risk-adjusted returns than virtually any other investment strategy on Wall Street? You bet.
This is the Zen Phoenix strategy in action.
Zen Phoenix: always buy growth with yield and yield with growth
always at fair value or better
and always focusing on safety and quality first and sound risk management always
balance in all things that matter (safety, quality, risk management, yield, growth, and value)
But before you get too excited, always remember that you must be comfortable with the risk profile of any company you are considering buying.
Risk Profile: Why Legal & General Isn't Right For Everyone
There are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.
LGGNY's Risk Profile Includes
Regulatory/capital requirement risk
"Reserves and our assessment of capital requirements may require revision as a result of changes in experience, regulation, or legislation."
"Changes in regulation or legislation may have a detrimental effect on our strategy."
Investment cyclicality risk
"Investment market performance and conditions in the broader economy may adversely impact earnings, profitability, or surplus capital."
counter-party risk
"In dealing with issuers of debt and other types of counterparty the Group is exposed to the risk of financial loss."
disruption risk (500 major peers, block-chain and smart contracts could potentially disrupt the insurance industry)
"New entrants may disrupt the markets in which we operate."
M&A execution risk (potentially overpaying for companies and executing poorly on integrating the acquisition)
talent retention risk (tightest job market in over 50 years)
data security risk: hackers and ransomware
"A material failure in our business processes or IT security may result in unanticipated financial loss or reputation damage"
Climate change risk (resulting in larger than expected losses)
"We fail to respond to the emerging threats from climate change for our investment portfolios and wider businesses."
Global Expansion Execution Risk (Now expanding into Europe and the US)
(Source: 2020 annual report)
How do we quantify, monitor, and track such a complex risk profile? By doing what big institutions do.
Material Financial ESG Risk Analysis: How Large Institutions Measure Total Risk
Here is a special report that outlines the most important aspects of understanding long-term ESG financial risks for your investments.
ESG is NOT "political or personal ethics based investing"
it's total long-term risk management analysis
"...ESG is just normal risk by another name." Simon MacMahon, head of ESG and corporate governance research, Sustainalytics - Morningstar
ESG factors are taken into consideration, alongside all other credit factors, when we consider they are relevant to and have or may have a material influence on creditworthiness. - S&P
ESG is a measure of risk, not of ethics, political correctness, or personal opinion.
S&P, Fitch, Moody's, DBRS (Canadian rating agency), AMBest (insurance rating agency), R&I Credit Rating (Japanese rating agency), and the Japan Credit Rating Agency have been using ESG models in their credit ratings for decades.
credit and risk management ratings make up 38% of the DK safety and quality model
dividend/balance sheet/risk ratings make up 79% of the DK safety and quality model
Dividend Aristocrats: 67th Industry Percentile On Risk Management (Above-Average, Medium Risk)
(Source: Morningstar)
LGGNY Long-Term Risk Management Consensus
Rating Agency | Industry Percentile | Rating Agency Classification |
MSCI 37 Metric Model | 96.0% | AA Industry Leader |
Morningstar/Sustainalytics 20 Metric Model | 93.0% | 16.5/100 Low-Risk |
Reuters'/Refinitiv 500+ Metric Model | 96.6% | Excellent |
S&P 1,000+ Metric Model | 55.0% | Average (Positive Trend) |
Consensus | 85.2% | Very Good |
FactSet Qualitative Assessment | Above-Average | Positive Trend |
(Sources: Morningstar, Reuters', S&P, FactSet Research)
(Source: Investor presentation)
(Source: MSCI)
According to MSCI's 185 industry experts, 13 major risk factors are important to consider for this industry.
environmental is just 5.2% of MSCI's weighting
governance is #1 weighting for most ESG risk models and that's true for MSCI as well, at 33%
(Source: MSCI)
Implied Temperature Rise compares the current and projected greenhouse gas emissions of nearly 10,000 publicly listed companies2 across all emissions scopes (based on the company's track record and stated reduction targets) with their share of the remaining global carbon budget for keeping warming this century well below 2 degrees Celsius (2°C).3 A company projected to emit carbon below budget can be said to "undershoot" the budget a company projected to exceed the budget "overshoots" it.
scope 1 = a company's own emissions
scope 2 = supply chain
score 3 = end users
(Source: MSCI)
scary headlines about regulations or lawsuits? ESG risk scores already measure it
(Source: Morningstar) - 20 metric model
93rd industry percentile
88th percentile among almost 15,000 globally rated companies
(Source: Reuters'/Refinitiv) - over 500 metric model
Reuters considers LGGNY's risk management to be in the 97th industry percentile with a 94/100 general risk management (CSR strategy) which is excellent.
(Source: S&P)
S&P's risk management model, which is included in all its credit ratings, uses publicly available data for over 1,000 fundamental metrics, ranging from talent retention/employee skill investments to supply chain management to occupational health and safety.
LGGNY's Long-Term Risk Management Is The 31st Best In The Master List (94th Percentile)
(Source: DK Master List) - 8 non-rated companies mean LGGNY is in 31st place
LGGNY's risk-management consensus is in the top 6% of the world's highest quality companies and similar to that of such other companies as
Canadian Pacific Railway (CP)
Amgen (AMGN)
NextEra Energy (NEE) - dividend aristocrat
Adobe (ADBE)
Prologis (PLD)
Cummins (CMI)
General Mills (GIS)
Novartis (NVS) - global aristocrat
Enbridge (ENB) - global aristocrat
Bank of Nova Scotia (BNS)
3M (MMM) - dividend king
V.F. Corp (VFC) - dividend king
Texas Instruments (TXN)
The bottom line is that all companies have risks, and LGGNY is very good at managing theirs.
How We Monitor LGGNY's Risk Profile
19 analysts
4 credit rating agencies
8 total risk rating agencies
27 experts who collectively know this business better than anyone other than management
and the bond market, the "smart money" on Wall Street
When the facts change, I change my mind. What do you do sir? - John Maynard Keynes
There are no sacred cows at iREIT or Dividend Kings. Wherever the fundamentals lead we always follow. That's the essence of disciplined financial science, the math retiring rich and staying rich in retirement.
Bottom Line: Legal & General Is One Of The Best 6.5% Yielding Blue-Chips You've Never Heard Of
I can't tell you when Wall Street will climb its wall of worry to a fresh all-time high.
Nor can I predict when the next market correction will bottom (though there are several factors that are pointing to around December 17th potentially).
What I can tell you with a high degree of confidence is that Legal & General is a wonderful alternative for REIT investors (or income investors of any kind) who are having trouble finding safe yields of more than 5% right now.
In fact, LGGNY's qualified dividends, which have no dividend withholding tax, are taxed at a lower rate than REITs.
Imagine the yield of a midstream but with no K1 tax form?
Imagine double the yield of a REIT blue-chip and with similar growth?
Imagine one of the best risk-management teams in the world, protecting your hard-earned money.
Imagine all of this at anti-bubble valuations that analysts think can potentially double your money in the next five years and that management says can double your money every five years over time?
You just imagined Legal & General, one of the best 6.5% yielding blue-chips you've never heard of, and the Dividend Kings' latest recommendation for our members.
Author's Note: Brad Thomas is a Wall Street writer, which means he's not always right with his predictions or recommendations. Since that also applies to his grammar, please excuse any typos you may find. Also, this article is free: written and distributed only to assist in research while providing a forum for second-level thinking.
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This article was written by
Brad Thomas has over 30 years of real estate investing experience and has acquired, developed, or brokered over $1B in commercial real estate transactions. He has been featured in Barron's, Bloomberg, Fox Business, and many other media outlets. He's the author of four books, including the latest, REITs For Dummies.
Brad, with his team of 10 analysts, runs the investing group iREIT® on Alpha, which covers REITs, BDCs, MLPs, Preferreds, and other income-oriented alternatives. The team of analysts has a combined 100+ years of experience and includes a former hedge fund manager, due diligence officer, portfolio manager, PhD, military veteran, and advisor to a former U.S. President. Learn moreAnalyst’s Disclosure: I/we have a beneficial long position in the shares of LGGNY either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (153)
In fact, extremely rare to be that good, even compared against word’s most well known investors like Buffet, Icahn, etc. And even better than mine :) We will compare how this one grows for you.@brad Thomas
