The Legal & General (LSE:LGEN) share price hasn’t been on a massive upward trajectory over the last five years. In fact, the stock’s basically flat, falling behind the FTSE 100 by over 35%. Yet despite the lack of capital gains, dividends have kept on flowing and growing.
So much so that the stock now offers one of the highest yields in the UK’s flagship index at 8.6%.
So should investors be rushing to snap up this seemingly lucrative income opportunity?
What the experts think
Interest rates have been problematic for a lot of businesses in the last five years. But for Legal & General, along with the insurance sector in general, they’ve proven to be quite advantageous. The pension risk transfer (PRT) market has seen a strong rebound in demand due to higher rates set by the Bank of England, enabling companies like Legal & General to bring in fresh revenue streams.
Simultaneously, the business is undergoing some operational streamlining by the new CEO, António Simões, to bolster profit margins and improve free cash flow generation. Since both of these directly improve the sustainability of dividends, it’s not so surprising to see analysts project growth for Legal & General’s payouts. Even more so, given management’s plans to return £5bn back to shareholders by 2028.
| Year | 2024 | 2025 | 2026 | 2027 |
| Dividend Per Share | 21.36p | 21.9p | 22.3p | 22.6p |
If the Legal & General dividend forecast proves accurate, that puts the forward yield at just shy of 9% for 2027. That’s nearly three times what the FTSE 100’s currently offering. But this is ultimately meaningless if the share price decides to take a tumble. So what are analysts projecting in terms of capital gains?
On the more optimistic end of the forecast, we have Goldman Sachs, UBS, and RBC Capital Markets, all citing excitement about future growth prospects and an attractive valuation. But on the more pessimistic end sits HSBC, Jefferies, and Citigroup, who are concerned about shifting market conditions and strategic execution risk under Simões.
| Analyst | Legal & General Share Price Forecast |
| Goldman Sachs | 295p |
| RBC Capital Markets | 285p |
| UBS | 280p |
| Jefferies | 260p |
| Citigroup | 255p |
| HSBC | 250p |
Taking a step back
Based on these forecasts, the price appears to be on track to do anything between remaining flat or increasing by up to 17%, along with a continued boost to dividends. While that’s not a gargantuan level of return, for income investors, this could be an attractive proposition. However, mildly optimistic forecasts from experts don’t make it a risk-free investment.
The group’s core business model’s susceptible to macroeconomic factors – not just interest rates but activity in the bond and stock market as well. Should the financial markets suffer a sustained downturn, the company’s asset values and revenue from client fees will likely suffer.
There’s also the question of execution risk. Restructuring a large business like Legal & General is likely to encounter some challenges and may disrupt the quality of experience for clients. And such, a development could create windows of opportunity for competitors to steal market share.
All things considered, Legal & General offers an attractive income proposition. But there also appears to be considerable risk attached to it. Therefore, investors will have to think carefully about whether the high yield’s worth taking on these risks.
