I’ve fallen for the charms of Authorized & Common (LSE: LGEN) shares. I purchased them in 2023 as a result of they regarded like an excellent earnings play, with some development prospects slightly bit additional down the road. Now I’m having doubts.

With a surprising dividend yield of 8.3%, it’s simple to see the attraction for earnings seekers. 

Nonetheless, with the share price down 1.4% over the past yr and a hefty 17% over 5 years, a major chunk of these dividends have been worn out by capital losses. Is that this a case of 1 step ahead, two steps again?

Is the FTSE 100 inventory manipulating me?

One purple flag is its price-to-earnings (P/E) ratio, which at present stands at a steep 32 following a current drop in earnings. That’s an eyebrow-raising determine. Authorized & Common traded at simply six occasions earnings after I purchased it in 2023. It regarded a discount then. I’m undecided it was.

I’m involved that I’ve been gaslighted into believing this can be a discount, solely to finish up overpaying for a enterprise that’s struggling to develop.

In December, the corporate launched a optimistic set of outcomes that provided some reassurance. The board stated it was on monitor to hit its steering for mid-single-digit development in working revenue throughout full-year 2024.

With forecast cumulative Solvency II capital technology of £5bn-£6bn between 2025 and 2027, the dividend regarded properly funded.

Buyers welcomed these figures, and the shares have rebounded 7% over the past three months, to be truthful. Nonetheless, the restoration has been hesitant.

The Authorized & Common share price obtained one other raise on 7 February, when CEO António Simões introduced the sale of the US safety enterprise to Japanese peer Meiji Yasuda in a $2.3bn deal. 

Meiji Yasuda will take a 5% stake in Authorized & Common, which Simões hailed as a “transformative transaction”. Once more, the shares jumped. Once more, it didn’t final. They’ve returned to their customary slumbers.

Is the dividend alone sufficient?

There’s a important alternative forward. As rates of interest fall, Authorized & Common’s excessive yield may grow to be much more enticing. 

Decrease charges have a tendency to spice up monetary shares by making their debt obligations extra manageable and growing the worth of their funding portfolios. In concept, this could assist the corporate regain momentum.

But there are two issues. First, UK rates of interest have been lower 3 times with little affect on the share price.

Second, there’s no assure they are going to be lower a lot additional, at the least within the quick run, as inflation picks up.

Authorized & Common won’t be a basic worth lure, however it isn’t a clear-cut earnings play both. The inventory sits in a irritating center floor, providing excessive dividends however little in the best way of capital appreciation. For buyers snug with that trade-off, it might nonetheless be a worthy addition to a portfolio.

I really like getting my dividends, and I gained’t promote. Extra gaslighting by Authorized & Common? Presumably. However to this point I’m up round 20%, regardless of minimal share price motion. I’ll deal with any development as a bonus. And keep it up questioning my sanity.