Investors have long flocked to the FTSE 100 to make market-beating passive income. Now is a great time to buy blue-chip shares too, in my opinion. The index is currently packed with income-paying value stocks.
Enduring worries over the domestic economy mean share pickers have fallen out of love with blue-chip UK shares. I think this is a shame. After all, huge number of Footsie companies are financially robust global operations whose geographic wingspan protects them from recessionary threats on these shores.
Legal & General Group (LSE:LGEN) is one such undervalued share on my radar today. At 250p per share, the financial services giant trades on a forward price-to-earnings (P/E) ratio of 9.4 times.
It also carries a mighty 8.5% dividend yield, more than double the FTSE 100 average of 3.8%. Here’s why I’m considering buying it for my Stocks and Shares ISA for 2024.
Dividend growth hero
Legal & General is best known for its life insurance products, although it’s also a big player in the investment and retirement services markets. With a market-cap of £15bn, the company has extensive operations across the UK, Europe, North America and parts of Asia.
Annual dividends here were frozen during the pandemic. But excluding this rare event, shareholder payouts have grown strongly in the wake of the 2008 financial crisis, thanks in large part to its exceptional capital generation. This can be seen in the chart below.
Chart created with TradingView
£1k of passive income
And City analysts expect investor payouts to keep climbing in 2024 too, resulting in that massive 8.5% dividend yield.
As a result, investors who bought just over £11,800 of Legal & General shares could expect to generate an impressive passive income of £1,000.
I don’t have that sort of cash on hand today to buy that many shares. However, I could make that four-figure second income by regularly investing over time. That is assuming broker forecasts prove correct and the dividend remains unchanged too.
At current prices, purchasing around 30 of L&G shares a week would generate a £1k annual passive income in three years.
Why I bought the shares
There’s a good chance I could hit my dividend income target before that date too. Legal & General has a strong appetite to raise dividends. And it has the financial strength to help it continue on this path.
The company’s Solvency II capital continues to rise strongly and hit 230% as of June. This was up 212% a year earlier as capital-boosting initiatives rolled on.
Growing long-term demand for retirement, wealth and protection products should also allow the FTSE 100 firm to keep increasing its dividends. Rising concerns over State Pensions and rapidly growing elderly populations will drive this trend.
On the downside, dividend cover for 2024 isn’t the best, standing at just 1.2 times earnings. Theoretically, this could leave payouts in danger if profits fall short of forecasts.
Yet Legal & General’s excellent balance sheet and strong long-term outlook means dividends could still grow strongly this year and beyond.
I already own the financial services giant in my portfolio. And I’m planning to buy more at the next available opportunity.
