I bought passive income star Legal & General (LSE: LGEN) a few years ago with an eye on my retirement.
Even then it was clear to me that if I wanted to actually enjoy my ‘golden years’ I shouldn’t rely on the State Pension.
Since then the insurance and investment firm hasn’t disappointed – generating consistently high returns for me. This has been with minimal effort – hence the ‘passive’ income label.
The key question is, can it keep delivering big dividend income for me into retirement?
The engine behind rising dividends
The powerhouse behind any company’s dividends is earnings growth. This generally results in a bigger pool of cash to reward shareholders, including through dividends.
Legal & General’s 12 March 2024 results showed operating profit up 6% year on year to £1.616bn. Operating earnings per share (EPS) rose in tandem to 20.23p.
Its subsequent 6 August H1 2025 results showed operating profit rise again by 6% — to £859m. Meanwhile, operating EPS jumped 9% — to 10.94p.
Overall, analysts forecast that its earnings growth will be a stunning 27.2% a year to the end of 2027 at minimum.
A strategic earnings catalyst
A risk to its earnings is any failure to capitalise on its February deal with Japanese insurance giant Meiji Yasuda. This saw the Asian firm spend $2.3bn (£1.8bn) to secure a 5% stake in Legal & General.
It also took a 20% economic interest in the UK firm’s fast-growing US Pension Risk Transfer business. This involves a company being paid by other firms to take over the running of their pension schemes. The potential here is enormous, as around $3trn of defined benefit pension schemes have yet to be transferred.
That said, Legal & General expects significant earnings growth to result from the strategic partnership. That includes from operational streamlining following the sale of its US protection business, and from leveraging Meiji Yasuda’s (which has close links with L&G) footprint across Asia-Pacific.
Rising dividend yield forecasts
Legal & General paid a dividend of 21.36p in 2024, giving a dividend yield on the current £2.44 share price of 9%. This is nearly triple the present FTSE 100 average of 3.1%.
As good as this is, analysts expect the payouts to rise, and the dividend yield too. Specifically, the forecasts are for dividends of 21.8p this year, 22.2p next year, and 22.6p in 2027.
These would generate respective yields on the current share price of 9.2%, 9.4%, and 9.5%.
How much income for retirement?
So a further £20,000 invested in Legal & General would make me £29,027 in dividends after 10 years. This is based on the current 9% yield, with none of the projected increases applied. It also incorporates reinvesting the dividends back into stock (dividend compounding).
On the same basis, the dividends would rise to £100,183 after 20 years, and to £274,612 after 30 years. The total value of the holding at that point (including the £20,000 initial investment) would be £294,612.
And at that point I would be drawing an annual dividend income of £26,515! That’s why I’ll be adding to my existing holding in Legal & General.
I am also keeping a close eye on several other high-yielding FTSE firms that have caught my attention.
