I’m building up a portfolio of FTSE 100 stocks that will pay me a passive income to top up my pensions when I retire.
One of my favourite is insurer and fund manager Legal & General Group (LSE: LGEN), which I’ve bought on three occasions this year, in April, July and August. In total, I invested £4,000, and plan to buy more when I have the cash.
So far the share price performance has been pretty underwhelming. I’m up a meagre 0.66% on my purchases. Still, these are early days, and I’ll measure the stock’s success over years and (hopefully) decades, rather than months.
Giving it time
Also, I didn’t buy the stock expecting a sudden growth spurt. As an asset manager, Legal & General is exposed to economic and stock market sentiment, which are likely to remain troubled for some time.
I bought it because the shares were cheap, trading at less than six times earnings, and because its dividends are among the most generous on the index, now yielding 8.67%.
I already reap the benefits, having received my first dividend on 28 September. I reinvested the payout straight back into the stock, as I always do.
I received an interim dividend of 5.71p per share, which was a 4.96% increase on last year’s 5.44p. It was worth just over £104. Hardly riches, but it’s a start.
Last year, L&G also paid a final dividend of 13.93p. If it does the same again and it also rises 4.96%, I can expect to get 14.62p per share. Since I hold 1,824 shares in total, that’ll be worth around £267.
So I’ll get around £371 worth of dividends in year one, which is great but hardly life changing. If I wanted to up that to £2,000 a year, I’d need to buy a lot more shares.
Doing my sums
In 2024, the stock is forecast to pay a total dividend of 21.4p per share. Which means I’d have to hold 9,346 shares to hit my £2k dividend target. At today’s share price of 225.8p, that would cost me £21,103 (minus the £4k I’ve already invested). That’s doable but might take me a few years, as there are other shares I’d like to buy too.
While I think the dividend looks sustainable, nothing is ever guaranteed when investing. Another risk is that the stock may be a classic value trap. The share price is down 6.98% over one year and 7.7% over five years, which is disappointing. If the economy slips into recession or share prices crash, it could fall even further.
The company is making money though, posting a first-half 2023 operating profit of £941m. That was a slight fall on last year’s £958m, but still solid. The low valuation and high yield more than compensate for these concerns. At some point, I think its share price could take off too, giving me some capital growth. But mostly, I’m after the passive income.