Legal & General (LSE: LGEN) shares are sliding along with the rest of the market, but every cloud has a silver lining. In this case, it comes in the form of the group’s dividend yield, which has now crept up to a staggering 9.2%. That’s the highest on the FTSE 100, aside from media giant WPP‘s, which is living on borrowed time, I feel.
It’s remarkable that investors can secure such a high income from a large, established company. Share price growth is on top, so this offers a massive potential total return. Inevitably, it’s not that straightforward.
Yields automatically rise when a share price falls, and a very high yield can signal a company with issues. That’s true for Legal & General, whose share price is 10% lower than it was five years ago (despite climbing 6% in the last 12 months). Long-term investors are ahead once dividends are included, but it’s still disappointing.
FTSE 100 dividend star
Once yields fly this high, investors rightly question if they’re sustainable. For 2025, the forecast yield sits at roughly 9.3%, but earnings currently cover the dividend just once. A cover ratio closer to two would offer more comfort. It’s a long way off that.
Yet the board is committed to increasing dividends per share by around 2% a year, and has also been returning cash through share buybacks. It recently completed a £500m share repurchase as part of a wider £5bn plan to return cash to shareholders through buybacks and dividends over three years.
In full-year 2024, Legal & General posted a 6% increase in core operating profit to £1.6bn, so it’s still making money. On balance I’d expect it to maintain those modest dividend hikes, although as ever, nothing is guaranteed.
The shares currently trade on a forecast price-to-earnings ratio of 13.6 for 2025, which isn’t demanding. Analyst forecasts produce a median one-year price target of 266p. If that’s correct – again, no guarantees – it implies a potential 13.3% rise. Combined with the forecast dividend, total returns could exceed 20%. We’ll see.
Stock market crash concern
Legal & General’s yield is eye-popping, but it’s not the only high income stock on the FTSE 100 today. Investors might want to check out sector rivals M&G and Phoenix Group Holdings, which also have high yields but have delivered share price growth too.
They should also take a view on the current stock market downtown, amid concern over a potential artificial intelligence bubble. With £1.1trn of assets under management, Legal & General will be on the front line of a wider sell-off.
Legal & General is in an odd position. The underlying business looks pretty solid, if not brilliant, yet investors seem reluctant to buy despite the massive income on offer. I suspect the shares may continue to idle for some time, but as long as that income holds, I think the stock is still worth considering today.
Investors shouldn’t buy expecting an immediate resurgence. Instead, they should take a long-term view. That means reinvesting dividends to build their stake for the day when the Legal & General share price finally shines. Patience is required but with luck, I think it should ultimately be rewarded.
