I think this high-yield share will do well in August

With half-year results due out later this week, I’m looking at why I think Legal & General (LSE: LGEN) could be a great share to buy during August. Much of the month’s performance will likely be driven by the reaction to the results and by the broader market. That aside, I think there are other solid reasons to believe that Legal & General shares are good value this month and beyond. 

Growth potential

Legal & General’s market leadership in passive investing is a great basis for growth as low-cost tracker funds are becoming increasingly popular with investors. Competitor Blackrock predicts tracker funds will grow to make up 30% of UK managed assets within a few years. This growth in their popularity is good for Legal & General given its focus on this type of investing.

The other parts of its business also tap into areas where there’s potential for growth. There’s the investing and annuities part of the operation, plus an insurance arm and investment management. On the annuities front, L&G has been signing some eye-watering deals. For example, there was a £4.6bn transaction with the Rolls-Royce pension fund, and its £4.4bn deal with the British Airways scheme.

I think investing, pensions and insurance are great businesses to be in. They provide recurring revenues, have barriers to entry and make up a service that’s only going to be increasingly sought after as the population ages. It’s a mix I think will serve L&G well over the longer term.

The shares

In the here and now, I think there’s an opportunity for the shares to progress – despite Brexit and the US-China trade war. The shares are up 10% in 2019 already and while the last month has seen them fall, that potentially makes August an opportune time to pick up the shares at a more affordable price.

That recent minor blip with the share price means that the P/E is now under nine and the dividend yield is around 6.5%. Cheap and offering investors very good income sounds like a good combination to me.

Final thoughts

The second half results from 2018 showed operating profit up 7%, but earnings per share fell from 14.19p to 13p. The return on equity also fell. This time around, for the shares to do well after the results, investors will of course be expecting to see earnings per share to improve. 

But the confidence of management will also, I think, be integral to what happens to the share price on the day of the results. Expectations of greater earnings and growth to come ought to be a boost, whereas too much caution with regards to Brexit and other factors will likely unnerve investors. This is especially important because L&G as an investor is particularly reliant on a stable, positive economic environment. 

Aside from all that, I’ll be hanging on to my shares in August and beyond because I think Legal & General is well-positioned to deliver both growth and income and that’s a combination I like very much.