Legal & General (LSE:LGEN) shares have been very popular among UK retail investors in 2025, often finding themselves among the most bought stocks on platforms like AJ Bell. And with a dividend yield now stretching all the way to 9%, it’s easy to see why.
But has this popularity actually translated into robust returns for shareholders?
A quick glance at the share price doesn’t reveal much growth, given the insurance giant’s market-cap has only increased by 4.8%. But throw dividends into the mix and the gains are a far more robust 14.3%. That means a £5,000 investment in January is now worth £5,715.
While it’s certainly not as impressive as some other FTSE 100 stocks, the fact that the share price has remained stable while high-yield dividends continue to flow is an attractive combo for investors seeking passive income.
But can this pattern continue in 2026?
Legal & General dividend forecast
During its Capital Markets Day in 2024, management revealed its new dividend strategy to shareholders, which shifted from increasing dividends from 5% a year in 2024 to 2% a year plus share buybacks from 2025 to 2027.
So far, Legal & General appears to be sticking to this strategy. And subsequently, most institutional analysts have projected dividends to climb at the rate outlined by leadership. In other words, today’s 9% yield is expected to get even bigger.
But if that’s the case, why aren’t more investors jumping on this seemingly lucrative passive income opportunity?
The elephant in the room
While Legal & General shares appear to be popular with retail investors, institutional investors are seemingly far more nervous. While the business is generating sufficient cash flows to cover its dividend promises, the margin’s tight. And with looming macroeconomic uncertainty, few are seemingly willing to take the risk.
As a life insurance and asset management business, Legal & General’s highly sensitive to shifts in fiscal and monetary policy. Specifically, the firm’s sensitive to movements in the UK gilt rates – the interest rate the government has to pay to borrow money.
It’s a bit complicated, but in oversimplified terms, when the yield on gilts goes up, the value of the firm’s investment assets goes down, severely impacting the performance of its portfolios and, in turn, its profits.
This impact’s only amplified with the company’s enormous exposure to long-dated guarantees through annuities, which are far more sensitive to shifts in the gilt market. Having said that, this can also reduce the long-term value of liabilities, making the net impact on the balance sheet a bit more nuanced.
Nevertheless, if things do go south, Legal & General’s dividend is likely to follow.
A risk worth taking?
Arguably, one of the best ways to describe the insurance giant’s dividend is: stable for now, but not bulletproof. And subsequently, the market’s demanding a premium yield to reflect the near-term risks surrounding this enterprise.
For more ambitious passive income investors, Legal & General shares could be worth a closer look. But given the limited margin of error and lack of control over external forces, this isn’t a risk I’m tempted to take. Instead, I’ve got my eye on other high-yield opportunities in the stock market right now.
