After years of disappointment, Legal & General (LSE: LGEN) shares are finally showing signs of life.

They’ve gone pretty much nowhere over the past decade but have now jumped 25% in the last 12 months. At last, investors are getting some capital growth along with their income.

A decade in the doldrums

Legal & General’s sprawling business, complex balance sheet and capital-intensive operations have made it difficult for investors to work out what the shares are really worth.

There have also been persistent questions over growth, profitability and the company’s ability to turn its enormous assets under management into better shareholder returns. Its asset management arm has faced fierce competition, squeezing fees, while strategic uncertainty hasn’t helped.

I bought the FTSE 100 insurer and asset manager in 2023 and my trading account shows a modest capital return of 23%. With dividends reinvested though, it’s closer to 63%.

That may sound excessive, but when I bought Legal & General it was yielding a stunning 10%. Ultra-high-yielding shares can be risky as they’re typically a sign of a declining share price, and those shareholder payouts may prove too expensive to endure. Legal & General’s yield was sustainable. So far, I’ve been rewarded but both are slated to rise by a modest 2% a year in future. That’s slightly below inflation, so their value will fall in real terms.

Why sentiment has improved

Legal & General has been making progress. Half-year results released 5 August showed core operating profit up 7% to £918m, beating expectations of £883m, driven by an impressive 37% jump in asset management fees.

It’s benefiting from demand for retirement products, including bulk annuities that allow employers to transfer pension liabilities to insurers. It has been simplifying the business and sharpening its focus, while a £1.2bn share buyback should bolster shareholder returns.

With £1.2trn of assets under management, the group has scale. The question is whether management can turn that into sustained growth.

Why analysts are so gloomy

But I’ve just checked the forecasts, and they’re ugly. Consensus one-year share price target is 270p, around 10% below today’s 300p. Even more startlingly, 10 out of 15 analysts rate the shares a Strong Sell.

• Strong Buy: 1
• Buy: 2
• Hold: 2
• Sell: 0
• Strong Sell: 10

The latest bearish forecasts from RBC Capital Markets and JP Morgan Cazenove both put the target at 270p. JPMorgan has warned of intensifying competition and weaker business margins in the life insurance sector.

Potential stock market volatility adds to the uncertainty. Higher bond yields can threaten dividend income stocks, as investors can get an improved yield, with less risk to their capital.

Yet the shares trade on a very enticing forward price-to-earnings ratio of just 7.7, with an equally tempting forecast yield of 7.43%. That looks cheap to me, provided earnings and dividends hold.

I’m not buying more today. But I’m not selling either. If those downbeat forecasts come through and the yield creeps towards 10% again, I might reconsider. Income seekers might like to check out this overlooked FTSE 100 stock instead. It also yields more than 7%…

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Harvey Jones owns shares in Legal & General.