Building a retirement portfolio? 4,545 Legal & General shares could deliver income of £970 a year

Legal & General shares sport a huge dividend yield at the moment. So they could be a cash cow for investors, explains Edward Sheldon.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If I was building a retirement portfolio today, I’d certainly consider buying Legal & General (LSE: LGEN) shares. This is a company with a good track record when it comes to rewarding investors with dividends. And right now it has a very attractive yield.

Here, I’m going to show how an investment in the financial services company could potentially deliver a ton of income in the years ahead. Let’s crunch the numbers.

A ton of passive income

To work out how much income a stock can potentially generate, there are two things we need to know. First, we need the company’s share price. Then we need its dividend forecast (the amount the company is projected to pay out per share on an annual basis).

Zooming in on Legal & General, it currently has a share price of 220p. Meanwhile, its dividend forecast for 2024 is 21.4p per share.

With these numbers, I calculate that if I invested £5,000 in the company today, I’d get 2,272 shares (ignoring trading commissions) and be in line for annual dividends of around £485.

Similarly, if I invested £10,000 in the company, I’d get 4,545 shares and be in line to receive income of around £970 a year.

Now £970 in income from a £10k investment is a very good result, to my mind. Especially if the investment was made within a Stocks and Shares ISA. Because then the income would be completely tax-free!

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Risk versus reward

So what are the risks here? Well, there are a few to be aware of. For a start, there’s no guarantee that Legal & General will pay out 21.4p per share in dividends for 2024.

While the company has continually raised its payout over the last decade, its profits could take a hit and then decide to pay out a smaller dividend. Rising interest rates, claims inflation, and new regulatory changes are other factors that could send profits lower.

Or management could decide the company’s yield is too high and lower the payout. It’s worth noting there’s a new CEO coming in next year. He could have new ideas in relation to capital distributions.

Ultimately, dividend forecasts are not always accurate.

Another risk is share price volatility. Legal & General has historically been quite a volatile stock. This is illustrated by the fact that it has a ‘beta’ of 1.7, which means it’s around 1.7 times as volatile as the UK market as a whole.

So if the stock market took a hit, investors in Legal & General could face share price losses.

Potential for attractive returns

IBut ’m optimistic that the company can deliver solid total returns (capital gains and dividends) over the long term. If I was building a retirement portfolio right now, it would be one of my top picks.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ed Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Dividend Shares

Young black colleagues high-fiving each other at work
Investing Articles

My five favourite forms of passive income

I've been looking for ways to pump up my passive income, so I can retire richer. But which of these…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

What’s the FTSE 100’s best 10% dividend yield?

Depressed prices have thrown up some golden opportunities on the FTSE 100. Which of these 10%-yielding Footsie stocks should I…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

BP shares look dirt cheap

Are BP shares a brilliant bargain? The financials look excellent and it’s hard not to call them anything other than…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

2 income shares for bumper dividends in 2024

I own these two income shares for their outstanding ability to deliver billions of pounds of cash dividends each year…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How I’d turn £1,000 into a lifetime of passive income

Creating streams of passive income now will help this Fool further down the line. With £1,000, here's how he'd start…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Don’t worry about a stock market crash, I’d buy cheap dividend shares now

It's easier to identify good dividend shares than predict how the stock market will perform. So why waste time worrying…

Read more »

Senior couple crossing the road on a city street. They are walking with shopping bags while Christmas shopping.
Investing Articles

How I’d target a yearly £11,737 second income from UK dividend shares in 2024

UK shares offer ample opportunities for a chunky second income. Our writer explores how he’d aim to earn a five-figure…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

7.1%+ yields! 3 high-dividend FTSE 250 stock ideas for passive income in 2024

The yields on these FTSE 250 income heroes rise close to 9% for next year. I think they could be…

Read more »