Legal & General (LSE: LGEN) shares are trading at levels last seen a decade ago. The 10-year stock chart is a series of peaks and troughs that lead precisely nowhere. Will the next decade be any better?

It may seem unfair to judge the FTSE 100 insurer and asset manager during a period of market turmoil triggered by the Iran war. But only slightly. The share price has been a major disappointment for years, and the contrast with its closest rival is stark.

While Legal & General shares are flat over 12 months and down 17% over five years, Aviva has done so much better. Its share price has risen 16% over the past year and 68% over five years. Aviva had its own struggles but chief executive Amanda Blanc has streamlined the group while improving profitability and investors have been rewarded.

High income, low growth

Legal & General’s performance has been bumpier. Profits fell in 2022 and 2023. I bought the stock during that slump, hoping the board would turn things around. Profits may have started to recover, but the shares haven’t.

On 11 March the company said it was on track to meet its financial targets and announced its biggest ever share buyback, worth £1.2bn. It plans to return more than £5bn to shareholders between 2025 and 2027, from both buybacks and dividends. But the market wasn’t impressed. Its shares fell 6% on the day.

Full-year core operating profit rose 6% to £1.62bn, but analysts had pencilled in £1.65bn. We know markets have little patience for even small disappointments. There was something else to worry about too as the group’s Solvency II coverage ratio slipped from 232% to 210%.

Even more worryingly, the full-year dividend was 21.79p per share. That’s slightly above core earnings per share (EPS) of 20.93p. Ideally, investors prefer dividends to be covered twice by earnings. Here they aren’t even covered once.

Earnings and dividend difficulties

I can’t imagine the board launching such a large buyback if it believed a dividend cut was imminent. Reducing the share count should also support EPS. But I can see why investors are uneasy. With growth scarce, the investment case largely rests on that generous income stream. If the dividend is cut, the shares could slide further.

Today, global stock markets face a fresh wave of uncertainty. A prolonged conflict in the Middle East could push energy prices higher and unsettle investors further. Legal & General has £1.2trn of assets under management, and will take a direct hit. But the conflict can’t be blamed for its recent underwhelming results.

I’ve already averaged down on my Legal & General holding twice, and despite that huge passive income I’m not inclined to do so again. The higher the yield climbs, the more fragile it looks.

For the moment I’m holding my shares and reinvesting the income, while keeping an eye out for less frustrating opportunities elsewhere. Given today’s volatility, they are plenty out there. I’ll target companies that find growth easier to come by in the good times than Legal & General does.