3 reasons to like the Legal & General dividend

Christopher Ruane explains a trio of reasons why he likes the Legal & General dividend as a source of passive income streams.

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As one of many small private shareholders in Legal & General (LSE: LGEN), I am hopefully set to earn my own passive income streams from the FTSE 100 financial services company. I think there is a lot to like about the Legal & General dividend. Here are three of those things.

Reason 1: dividend set for ongoing growth

The last time the Legal & General dividend was cut was during the 2008 financial crisis. Since then, apart from one year during the pandemic when it was held flat, we have seen an annual increase in the dividend per share.

In recent years, that increase has been running at around 5%. The firm has announced a dividend policy that foresees an annual increase of 2% in coming years.

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On one hand, that is disappointing. It means a lower rate of growth than before even though the company has excess cash (it has recently bought back several hundred million pounds’ worth of its own shares).

On the other hand, a rise is a rise. The Legal & General board has set out its intention to keep growing the dividend annually and while payouts are never guaranteed at any company, I am confident Legal & General will deliver on its plan.

Reason 2: solid business underpinning the payout

One of the reasons for my confidence is the source of the Legal & General dividend.

The long-established business operates in an area that I expect to see sustained high demand for decades to come: retirement-linked financial services. That includes areas such as asset management and insurance.

Thanks to its strong brand, deep sectoral expertise, and large customer base, I see Legal & General as having a strong ability to compete in this field both now and in the future. That should help it continue to make profits, something it has done consistently in recent years.

Will that happen?

Recent performance has been mixed. Profit after tax attributable to equity holders was 41% lower in the first half than in the equivalent period last year, while operational surplus generation also fell although by a far smaller percentage.

If there is a market downturn, I see a risk that policyholders may decide to pull funds, hurting profits at Legal & General. As a long-term investor, though, I reckon the business has strong cash flow generation potential.

Reason 3: £94 in annual income for each £1K invested

Right now, the Legal & General share price (down a fifth in the past five years) makes for a dividend yield of 9.4%. That means that, for every £1K put in, hopefully the firm would pay £94 in annual dividends. That is before even factoring in the positive impact of the planned rises.

Created with Highcharts 11.4.3Legal & General Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Dividends are never guaranteed and only time will tell what will happen to the Legal & General payout. But from an income perspective, I see multiple reasons for investors to consider buying the share.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

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.

C Ruane 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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