The last time I covered Legal & General (LSE: LGEN) shares here on The Fool, I declared it to be perhaps the FTSE 100‘s greatest dividend. Not much has changed on that front. The payout is still one of the best around.
It’s so good, in fact, that I’m curious to see how much I’d receive from the shares I own. Three years is a good timeframe to work with. I can use dividend forecasts from the City’s top analysts to point me in the right direction.
So let’s do that then. A thousand pounds in Legal & General stock. What might I have in three years?
Let’s begin with those forecasts. I’ll assume a £1,000 stake invested at an average cost price of 229p. Here’s what I’d expect from dividends over the next three years.
| 2023 | 2024 | 2025 | Final | |
| Amount | £1,000 | £1,089 | £1,190 | £1,308 |
| Dividend forecast | 8.87% | 9.32% | 9.83% | |
| Dividend return | £89 | £101 | £118 |
Okay, we’re off to a good start. If these forecasts are accurate, I’d be up over 30% on dividends alone. The £118 return in the third year also looks pretty tasty after putting just a grand in.
That’s not the end of the story here though, as I’d have more money if my shares rise in value too. Could they surge and leave me with even more cash from my investment? Well, that sounds splendid but I’m not optimistic they will.
The good and bad
For one, the Legal & General share price has stagnated for the best part of a decade. It’s been bouncing between £2 and £3 for most of that time. I could have bought the shares for 235p in 2014 and still be down looking at where the price is now.
This poor performance is mirrored in the FTSE 100 too, and on the one hand, I could look at this as a red flag. UK shares have been struggling and who is to say the rot will end any time soon? Legal & General might spend another 10 years with no meaningful share price returns.
On the other hand, there’s plenty to be positive about. The firm makes plenty of cash and the dividend payment is covered by 1.7 times earnings. The 10-year growth rate of the dividend is a nice-looking 9.3% too. A consistent and increasing payment should drag the share price up too, all else being equal.
Let’s go back to my question then, what could I expect my £1,000 to be after three years?
What could my £1,000 turn into?
Well, I would be surprised to see the share price drop any further. So, adding those dividends in, I’d expect around £1,300 on the lower end.
In the best case scenario, I would expect the shares to rise, perhaps along with a FTSE 100 that reverts closer to its average historical growth. If this were to happen, a rise to £1,800 – including those dividends – could be on the cards.
With all that said, this is speculative. There are no guarantees with the stock market and even the most thoughtful prediction is closer to a guess than an estimate. Still, I like Legal & General a lot. I’ll be crossing my fingers that my more optimistic projection becomes a reality.
