How many Legal & General shares must I buy to give up work and live off the income?

Harvey Jones is wondering whether to go all in on ultra-high-yielding Legal & General shares in a bid to maximise his annual passive income.

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Legal & General (LSE: LGEN) shares offer one of the most generous dividend yields on the entire FTSE 100. And then some.

That’s why I bought the stock last year. In April, May and August. In September, I received my first dividend, and I’m expecting my next payment of 14.63p per share on 6 June. I’m reinvesting every penny to build my stake over years and with luck, decades.

Sadly, the share price hasn’t been as rewarding. It’s up a modest 9.6% over the last 12 months. Over five years, it’s down 2.57%. As a consolation, there’s the dividend. The stock is forecast to yield 8.56% in 2024 and 9.06% in 2025.

A dividend near double digits can be vulnerable, as investors in Vodafone Group recently discovered. The telecom giant’s current yield is 10.25% but it won’t last. Shareholder payouts will be slashed in half next April.

Top FTSE 100 income stock

I didn’t buy Vodafone shares, because I saw that coming. I did buy L&G though, because I thought its dividend was sustainable. Only time will tell if I’m right.

2023 was a mixed bag. While the group posted a £1.667bn operating profit, this was only marginally up on 2022’s £1.663bn. Profit after tax actually fell, and quite sharply, from £783m to £457m.

Its fund arm, Legal & General Investment Management (LGIM), was hit by high interest rates, which made equities look less attractive relative to cash and bonds. Assets under management fell 12% year on year.

Yet the balance sheet remains strong, with Solvency II capital generation firm at £1.8bn. The board is aiming to generate capital of £8bn to £9bn over the four years to 2024, which should help secure the dividend. Reports that L&G could pocket £1bn by selling subsidiary Cala Homes to housebuilder Persimmon or a rival bidder have lifted the shares in recent days.

In 2023, L&G also upped its full-year dividend per share by 5% to 20.34p, suggesting confidence. I’ll get my share on Thursday.

I’m hopeful that the price will pick up, once interest rates start falling. At that point, investor sentiment should recover, driving up stock markets. Crucially, yields on cash and bonds will fall, in a boost for LGIM. This will also make the sky-high yield look even more attractive.

My dividend hero

My rosy scenario may not pan out. If interest rates stay higher for even longer than anticipated, the shares could continue to idle. Again, time will tell.

Given the ultra-high income on offer, the stock could be a brilliant way of getting maximum income in retirement. Let’s say I wanted my Stocks and Shares ISA portfolio to generate £20,000 a year in retirement, on top of my State Pension and other income sources.

Then let’s also say that the Legal & General dividend increases by another 5% next year, to 21.36p. In that case, I’d need to buy 93,633 shares. At today’s buy price of 250.6p, that would cost me £234,644.

That’s an awful lot of money, but I’d get an awful lot of income in return. And it would rise over time, with luck. I won’t do it, of course. It would involve putting nearly all of my retirement income eggs in one basket. But if I ever did go all-in on any FTSE 100 dividend stock, I’d probably choose this one.

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.

Harvey Jones has positions in Legal & General Group Plc. 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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