Why I’m convinced this dividend stock is the best 8% yielder on the FTSE 100

Our writer explains why this high-yield dividend stock, with a solid track record and healthy finances, is right at the top of their watchlist.

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The FTSE 100 index is home to a handful of companies boasting attractive yields and robust dividend policies.

Consisting of the UK’s 100 largest companies listed on the London Stock Exchange, it’s ideal hunting ground for investors looking to earn passive income by way of dividend payments.

Among several contenders, one stock in particular stands out to me. In fact, I’m convinced it deserves to be considered as one of the best 8% yielders on the FTSE 100.

An international player in pension risk transfer

Established in 1836, Legal & General (LSE:LGEN) is a leading financial services group and major global investor. Its mission statement is to safeguard people’s financial futures around the world.

The group’s five businesses together cover the four key areas in which Legal & General aims to be a market leader. This includes retirement, investment management, capital investment, and insurance.

In successfully providing retirement and protection solutions over the years, the company has grown to become one of the world’s largest asset managers.

Robust financial performance

Building upon its impressive long-term track record, I think Legal & General’s recent financial performance is testament to its resilience and strategic prowess.

Last month it reported a solid set of first-half results. For instance, operating profit stood at £941m for the period, slightly below the £958m recorded in the first six months of 2022.

Alongside that, the company’s Solvency II coverage ratio (a critical benchmark for the financial health of insurance companies) stood at a healthy 230%, showcasing a surplus of £9.2bn.

Combined with the fact that capital generation is exceeding dividend payouts, the financial services provider has plenty of cash to support what is an outstanding dividend yield.

The best 8% yielder

And with that eye-watering 8.5% yield, I’m willing to bet that Legal & General is near the top of a lot of income-seeking investors’ watchlists.

What’s more, amid the reporting of its half-year results in August, the company declared an interim dividend distribution of 5.71p. This represents a 5% increase over last year’s first-half dividend of 5.44p.

What I particularly admire about the group is its commitment to a generous and long-term dividend strategy.

To illustrate, the board recently signalled its intention to maintain 5% annual growth in the dividend until 2024. That’s great news for investors seeking passive income.

Challenges lie ahead

That said, I see a number of risks associated with Legal & General, many of which are inherent in the business, arising from its products, investments, and even the business environments in which the group operates.

For example, the company invests in a range of assets including equities, bonds, and property to meet the obligations from its long-term life insurance business.

Consequently, there is always the risk that the income and value of these investments may underperform relative to required targets.

Nonetheless, the group’s robust approach to risk management is reassuring to me. That’s especially since it prioritises supporting informed risk taking across the whole business.

For this reason, if I had some extra funds lying around, I’d eagerly scoop up some shares.

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.

Matthew Dumigan 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.

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