At 52-week highs, I think the Legal & General share price is heading higher still

Some investors get worried about buying a stock that’s at 52-week highs. It’s a human bias as we don’t want to be seen as overpaying for something. However, in the stock market, companies doing well can keep their momentum going for a long time. So when I noted the Legal & General (LSE:LGEN) share price soaring, it struck a chord.

Off to the races

The stock is up 14% over the past year. One driver in this move has come from income investors. The current dividend yield is 7.8%, and it hasn’t fallen below 7.5% for the last year. As a result, it’s one of the highest-yielding options in the entire FTSE 100. More than that, the high yield is underpinned by solid capital generation and solvency metrics. So it’s not like a flash-in-the-pan spike in dividend potential that looks unsustainable.

Another driver has been demand from the bulk annuities part of the business. This is a structurally growing market in the UK, where Legal & General is a leader in pension risk transfers. Not only is this area providing large inflows, but it’s an area investors like because typically it’s linked to predictable long-duration cash flows.

Room left to run

I believe the stock can keep moving higher in the coming year. Even though earnings for the year are unlikely to be explosive, it should be a steady compounder. Management is guiding for a modest increase in the dividend per share, which should be enough to keep dividend hunters interested.

Further, the company is well placed for 2026 as a defensive stock. There’s a huge amount of uncertainty right now geopolitically. Yet the UK stock market is hitting record highs. Even though I’m not expecting an imminent crash, I don’t think it hurts to position a portfolio towards more defensive companies in coming months. Legal & General fits the bill very well.

Valuation concerns

One of the main risks to my view, is the valuation. The price-to-earnings ratio is 68.4, which is high and almost four times as high as the FTSE 100 average. Of course, this isn’t a dealbreaker, as we shouldn’t make investment decisions based on a single metric. But it’s a warning sign that could indicate the stock is becoming overvalued.

From a fundamental perspective, some would be worried that it’s operating in a mature sector that’s unlikely to have the same growth prospects in the coming years relative to AI or some tech areas. This is true, but I feel this fits in nicely to an existing diversified portfolio, alongside tech stocks. Given high growth shares typically don’t pay dividends, having Legal & General in a portfolio can bring advantages.

Overall, I think the stock has the potential to keep growing at a respectable pace, coupled with strong income. Therefore, it’s a stock to consider.

The post At 52-week highs, I think the Legal & General share price is heading higher still appeared first on The Motley Fool UK.

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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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