1 dividend stock I aim to own for decades

I’m a big fan of dividend investing, so I like to buy shares that pay out cash dividends to their owners. For me, buying dividend stocks is a lower-risk way to ride out Mr Market’s periodic meltdowns.

Currently, my wife and I reinvest all of our dividends into buying more shares. Over time, this increases the size of our shareholdings, boosting our returns. But when we retire, we will use these cash payouts to replace some of the earned income we give up.

Here is one dividend stock we currently own — and intend to keep for many years to come.

My ideal dividend stock: Legal & General

I’m a great admirer of insurer and asset manager Legal & General Group (LSE: LGEN), whose shares offer one of the highest cash yields on the London market.

For the record, my wife bought shares in Legal & General in July 2022, paying 247p per share. At the current share price of 234.9p, L&G is valued at over £14bn, making it a FTSE 100 middleweight.

At their 52-week high on 8 March, L&G shares hit 311.13p. But then financial stocks worldwide tumbled as panic spread regarding badly run US banks.

Here’s how L&G’s share price has performed over six different periods:

Note that L&G shares have lost value over five periods, ranging from one month to five years. However, these figures exclude L&G’s hefty dividends, which would lift these returns substantially.

Founded in 1836, L&G has grown to become one of the UK’s largest asset managers, looking after more than £1.2trn for over 10m customers. L&G’s size, combined with its balance-sheet strength, has allowed the company to pay out bumper dividends, as seen below:

Note that even during the Covid-19 crisis of 2021/22, L&G held its dividend in 2020, before raising it by 5% in 2021. To me, this demonstrated a strength and confidence that few other companies could muster in those troubled times.

What’s more, I expect L&G to continue raising its generous dividend. Yet at the current share price (234.9p), this stock trades on a lowly price-to-earnings ratio of 6.4. This translates into a hefty earnings yield of 15.6% — around twice that of the wider FTSE 100.

Of course, L&G’s current cash yield of 8.25% a year appears incredibly attractive to me. Even better, this payout is covered almost 1.9 times by historic earnings, which offers a decent margin of safety.

When would I sell L&G?

What would convince me to sell our current holding of L&G shares? Of course, when the facts change, I change my mind. However, I see nothing right now that would lead me to part with our existing stake.

Then again, were financial markets to crash again, damaging L&G’s balance sheet, revenues and earnings, then I might think differently. Also, if the company’s excellent leadership team suddenly became adept at ‘finding landmines with their feet’, then I might worry.

Nevertheless, I see L&G today as an ideal dividend stock. Thus, my aim is to keep reaping cash payouts from it for decades to come!