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.