Despite the chance of increased dividend tax and ongoing fiscal challenges, some UK dividend stocks could improve following the Autumn Budget.
Two standout candidates are Legal & General (LSE: LGEN) and M&G (LSE: MNG). Due to their strong fundamentals and attractive dividend yields both look to be worth considering.
Legal & General
Legal & General is among the highest-yielding stocks in the FTSE 100, currently offering a forward yield of 8.9%. The company is highly solvent with a lot of spare cash and a diversified business, spanning pensions, annuities, life insurance and asset management.
The group expects earnings per share (EPS) to increase by around 6%-9% for 2025, reinforcing confidence in its operations. If so, it could easily sustain (or grow) dividends even if the Budget hits the economy where it hurts.
That said, sentiment is sensitive to UK fiscal and economic policy. A significant dividend tax hike could dampen retail interest in the stock, particularly as it’s often viewed as a proxy for the UK economy. Analyst price targets reflect caution, expecting growth of only 5%-8% in the coming year.
Why it could benefit post-Budget
Legal & General is well-positioned to benefit from long-term pension risk transfer trends, which the company expects to double in market size by 2034.
With the Autumn Budget expected to focus on households, it is unlikely to be hit by any tax increases. Plus, if interest rates fall as expected, it could renew demand for shares over cash and bonds, making high-yield dividend shares more attractive.
M&G
M&G is another FTSE 100 financial services giant with a current dividend yield of around 8.1%. Analysts are forecasting strong earnings growth of over 34% a year for the coming three years.
Some have highlighted an expectation of increasing profitability, supported by significant net inflows and growing assets under management (AUM).
Why it could improve after the Budget
Rumours have floated around possible changes to the Cash ISA allowance that could encourage investment in UK shares. If so, M&G’s UK equity focus and institutional client base may benefit. Backing this is a strong financial position, with solid cash generation and diversified earnings streams between asset management and insurance.
The average 12-month price target from analysts is only 5%-6% from current levels. With the yield, that’s a decent total — but still, there are risks.
Any further increase in dividend taxation could make the high yield less attractive post-tax. M&G’s aggressive operational growth may offset this to some degree but it’s worth noting. Leverage and cash-flow risks are also an ongoing concern, so investors should keep an eye on profitability and market conditions.
Final thoughts
Legal & General and M&G both offer high, stable yields and the potential to improve after the Autumn Budget. Each has a fundamentally strong and diversified business, and both are forecast to grow in 2025 despite the challenging economic landscape.
While dividend tax increases could be negative, analysts expect most of the fiscal tightening to fall on households. The added benefit of potential ISA changes make these two stocks worth considering for dividend investors seeking reliable, stable income post-Budget.
