Legal & General (LSE: LGEN) has been a winner for FTSE 100 income seekers in 2025, with an expected full-year 8.5% dividend yield on the cards.
A high yield can mean investors see a risk the payment isn’t going to happen. Or that it might not continue in the coming years. But I rate the danger of that at Legal & General as fairly low.
Great expectations
In the first half, the company posted core earnings at the top of its target range. CEO António Simões spoke of a “promise to return more to shareholders with over £5bn in dividends and share buybacks over three years.”
We don’t have much of the year left to go. And analysts have been increasingly optimistic in the last month or so. The 2025 dividend isn’t in the bag — no dividend ever is until it’s actually paid. But I’d rate the chances of disappointment now as fairly slim.
There are some other big yielders in the FTSE 100. But AJ Bell‘s latest Dividend Dashboard points out that Legal & General is one of the few of the top ones that hasn’t cut its dividend in the past decade.
Show me the cash
One danger sign, as the Dividend Dashboard also highlights, is that forecast earnings would only cover around 80% of the expected dividend this year. That can be a worry, though things aren’t always so clear cut in the insurance and investment business.
In this case, Legal & General does seem to have the surplus capital to return to shareholders. Forecasters also expect earnings to exceed dividends in 2026, increasing further in 2027. So for the next two or three years at least, my confidence in the Legal & General dividend is reasonably high.
Judging by the share price though, the market doesn’t appear to agree with my optimism. It’s gone just about nowhere in the past 10 years, but why?
Valuation uncertainty
The nature of the business makes valuing insurance companies tricker than some more straightforward companies. It makes it hard to decide if a forward price-to-earnings (P/E) ratio of 15 — close to the FTSE 100 average — is good value or not. With the sector notoriously exposed to cyclical risk, some investors will want more safety room.
Forecasts do show the P/E coming down to 9.5 by 2027. But that’s a long time ahead for this kind of stock, and insurance shocks can happen overnight.
I tend to look for liquidity measures more than anything in this sector. And on that score, Legal & General looks solid. Interim results showed a Solvency II coverage ratio of 217%. It’s down a bit from 235% previously. But anything above 100% means a company can meet regulatory capital requirements.
2026 cash cow?
I’d say long-term income investors really should consider Legal & General for 2026 and beyond. And with the sometimes erratic nature of this sector, I can’t stress the ‘long term’ bit enough. If I wasn’t already a bit overexposed to Aviva, I’d be lining some up myself. I might still do so.
