Legal & General (LSE:LGEN) shares have leapt roughly 12% over the last year. The rally reflects improving profits momentum, especially at the firm’s retail and institutional units. But that’s not all — its generous dividend policy has attracted a lot of buying interest from passive income investors.

Following Legal & General’s share price gains, someone who bought 1,001 shares in the company 12 months ago would now be sitting on a £249 capital gain. The value of that number of shares is worth £2,648 today, up from £2,399 a year ago.

Throw in dividends, too, and investors would have made a tasty £464 overall profit. But can the FTSE 100 company continue surging in price? I have to admit as a shareholder myself, I’m not so sure…

High valuation

My problem is that Legal & General’s shares now look expensive on paper. Its forward price-to-earnings (P/E) ratio is 11.5 times, above the 10-year average of roughly nine.

On the other hand, the firm’s P/E-to-growth (PEG) ratio of 0.3 is below the bargain watermark of one. So on predicted earnings, then, a case can be made either way on whether the company is attractively valued.

However, the FTSE firm’s sky-high price-to-book (P/B) ratio tells a more conclusive story. This is now 6.4 times, when over the long term it’s averaged between two and three.

With this sort of valuation, it’s tough to see the share price gaining much more ground, in my view. In fact, it’s the sort of reading that could cause a sharp drop if market confidence begins to sour.

What could go wrong?

As I say, Legal & General’s performed robustly at a time when consumers are still feeling the pinch. Core operating earnings per share rose 9% in the first half of 2025, at the top end of its 6%-9% target range.

Sales continued to rise at its retail and institutional divisions. It’s perhaps not difficult to see why — with populations across its markets steadily ageing, demand for life insurance, pensions, investment products, and savings enjoy a natural boost.

But can this strong momentum continue? It’s possible as interest rates are cut, boosting consumer spending power. However, there are also significant threats, from an enduring cost-of-living crisis and weak growth in key markets like the UK; intense competition across its product lines; and a stock market downturn that hits its asset management arm.

Is Legal & General a buy?

So should investors buy Legal & General shares today or steer well clear? In my view, it’s a high-quality share worthy of a robust valuation, though share pickers should remember the possible implications of its large P/B ratio on near-term share price performance.

I certainly believe the FTSE 100 company is worth a close look from dividend investors. With yields of 8.3% and 8.5% for 2026 and 2027 respectively, it’s the highest-yielding share on the index today. And thanks to its cash-rich balance sheet, Legal & General’s in great shape to pay the huge dividends analysts are expecting too.