Financial services giant Legal & General Group (LSE:LGEN) is one of my favourite FTSE 100 dividend shares. I opened a position in the company during the summer. And I’m looking to increase my holdings as soon as my financial circumstances allow.
Higher interest rates have depressed assets under management (AUMs) at the firm’s investment division of late. As a consequence, operating profit has dropped 2% to £941m in the first half, latest financials showed. This means the share price could continue to struggle.
Yet trading has remained remarkably resilient despite the tougher trading environment. And things could be looking up in 2024 as central banks consider cutting rates in response to plummeting inflation.
Here’s why Legal & General is one of my favourite passive income shares today.
1. Huge (and growing) dividend yields
Life insurance companies are famed for their vast dividend yields. And in the case of Legal & General, the yield sits at a vast 8.3% for 2023. This is more than double the Footsie average of 3.8%.
The regular premiums such businesses receive allows them to pay market-beating dividends year after year. In fact, as the table below shows, shareholder payouts from this particular industry giant is expected to rise steadily over the next three years, pulling the yield higher in the process.
| Year | Dividend per share (f) | Dividend yield |
| 2023 | 20.33p | 8.3% |
| 2024 | 21.36p | 8.7% |
| 2025 | 22.5p | 9.2% |
2. Balance sheet strength
Large dividend yields count for little if payout forecasts are looking weak. But a strong balance sheet means that Legal & General appears in great shape to meet broker estimates.
Capital generation is high — the firm created nearly £950m worth of cash in the first half — and comfortably beats what the business pays in dividends. Between 2020 and the first half of 2023, net surplus generation exceeded dividends by a whopping £600m.
The balance sheet has continued to strengthen despite Legal & General’s recent difficulties too. Its Solvency II capital surplus stood at £9.2bn, well ahead of a capital requirement of £7bn. Furthermore, its Solvency II capital ratio improved to 230% from 212% a year earlier.
With the company on track to meet its 2024 cash targets (as shown below), dividend objectives for the next two years at least look pretty secure.
3. Long-term growth
As mentioned above, a favourable outlook for interest rates bodes well for financial services firms like this in 2024.
Recent pressure on AUMs remains a risk for the firm. But if central banks adopt gentler monetary policy, while consumer demand for wealth, protection, and retirement products also picks up, that could help lessen that pressure.
I’m also very bullish on Legal & General’s profits (and dividend) prospects beyond 2025. Competition is fierce across its markets. But its opportunities to grow business are still considerable as the number of elderly citizens rockets across Europe and North America.
A brilliant bargain?
At 245p per share, Legal & General shares trade on a price-to-earnings (P/E) ratio of just 9.2 times for 2024. With the business also carrying those gigantic dividend yields, I think it’s a bargain right now.
