Legal & General (LSE: LGEN) shares come with a trailing dividend yield of 8.36%, one of the highest on the FTSE 100.
Usually, a yield that high would set alarm bells ringing. But I think it’s sustainable. If I didn’t, I wouldn’t have bought the stock several times in 2023.
What gives me confidence is its payout history. Over the past 15 years, Legal & General has increased its dividend every single year but one. The exception was 2020, during the Covid pandemic, when it was frozen. I’ll forgive that. The government was twisting arms at the time. Growth resumed the next year.
Over 15 years, Legal & General’s dividends have grown at a compound rate of 12.12% a year. That’s impressive but one thing worries me. The growth rate has slipped to 6.62% over 10 years and just 3.98% over five.
Dividend direction
Closer inspection shows payouts have risen 5% in each of the past four years, but there’s change coming. Between 2025 and 2027, the board only plans to increase them by 2% a year.
I’ve defended that decision before. With such a generous yield, a lower growth rate didn’t seem like a big deal. But put next to a broader slowdown in dividend growth, I’m no longer brushing it off quite so easily.
This matters, because Legal & General shares have done badly. They’re up just 3.4% over one year and less than 3% over five. In the same time, big FTSE 100 rival Aviva (LSE: AV.) grew 30% and 120%, respectively. That’s a bruising comparison.
Aviva’s dividend growth is also a clear winner. Over the last five years, Aviva has grown its payout at a compound annual rate of 18.4%. It did bow to pressure in 2020 and cut dividends.
Growth worry
I’m clearly backing the slower horse, and Aviva’s recent trading update has only widened the gap. On 15 May, the insurer heralded a “great start” to 2025, with premiums rising by almost 10%. CEO Amanda Blanc sounded upbeat, saying the group had a strong balance sheet, clear strategy, and was hitting targets across growth areas.
Aviva is now aiming for £2bn in operating profit by 2026, and cumulative cash remittances of more than £5.8bn by then.
To be fair, Legal & General isn’t asleep at the wheel. In March, it hailed “strong” 2024 performance and unveiled a £500m share buyback. That’s part of a wider £5bn capital return plan over three years, roughly 40% of its market value.
Sitting tight
I won’t be switching horses. It always seems that the minute I change queues – at the airport, in the bank, wherever – the one I just left starts moving faster. That would surely happen if I hopped over to Aviva now.
Also, I prefer the idea of buying laggards that could bounce back, rather than chasing winners after they’ve already flown. Now here’s the clincher. Legal & General still pays me handsomely. I received £305 in dividends on Thursday and promptly reinvested the lot.
Aviva offers a solid 5.75% yield. Investors might consider buying it for added growth potential. But for me, Legal & General’s shareholder returns are too juicy. I’ve always had a sweet tooth.
