Legal & General (LSE: LGEN) looks one of the most compelling dividend opportunities in the FTSE to me right now.
It already yields a hefty 8.1%, and forecasts suggest that could climb to an eye‑catching 8.9% by 2028. Yet despite that income firepower, the stock still trades at a staggering 57% discount to its ‘fair value’.
So, how much could another £20,000 investment from me make from this crackerjack stock?
Strong dividend growth
The insurance and investment giant has lifted its dividend every year since 2020. Over that period, payouts have risen from 17.57p to 18.45p, 19.37p, 20.34p, and most recently 21.36p.
Those gave annual dividend yields of 6.6%, 6.2%, 7.8%, 8.1%, and 9.3%. Based on the current £2.63 share price, the stock yields 8.1%.
Analysts expect the upward trend to continue, with forecasts of 22.2p this year, 22.7p next year, and 23.4p in 2028. These would generate dividend yields of 8.5%, 8.7%, and 8.9%. For context, the average dividend yield in the FTSE 100 — its home index — is 3.2%.
A striking valuation gap too
On a discounted cash flow (DCF) basis, the shares trade at an estimated 57% below their fair value. This is based on forecast earnings growth and my calculations, while other DCF calculations are more conservative.
This is an unusually wide gap for a FTSE 100 financial heavyweight with a long record of profitability and dependable cash generation, in my experience.
So, for long‑term income seekers, this can also create standout capital‑appreciation potential, as asset prices tend to converge to their fair value over time.
To put numbers on it, my DCF calculations highlight a fair value of around £6.16 per share.
Robust fundamentals in results
Legal & General’s recent results highlight why the market’s deep discount looks increasingly out of step with the underlying business.
Its full-year 2024 results, released on 12 March 2025, saw reported 6% year-on-year growth in core operating profit to £1.62bn. Core operating earnings per share (EPS) also rose 6% to 20.23p.
The firm generated £1.8bn of Solvency II capital and maintained a robust 232% coverage ratio. This speaks to huge financial resilience, as it compares to the minimum industry standard ratio of 100%. It also announced a £500m share buyback, reinforcing management’s confidence in future cash generation.
Its subsequent 6 August H1 2025 results showed operating profit rise again by 6% to £859m. Meanwhile, operating EPS jumped 9% to 10.94p.
A risk to future earnings is the high level of competition in both retirement solutions and asset management that could squeeze its margins.
Even so, analysts forecast its annual average earnings growth will be a stellar 21.3% to end-2028.
How much could I make?
Another £20,000 invested at an average 8.9% yield would generate £28,543 in dividends over 10 years. This assumes the payouts are reinvested back into the shares (‘dividend compounding’). That said, dividend yields are not guaranteed and can rise, fall or stay the same over time.
However, on the same 8.9% average return, the total dividends received would rise to £265,968 after 30 years.
By that time, the overall value of the holding would be £285,968, delivering £25,451 a year in dividend income!
Given this, and the stock’s deep discount to fair value, underpinned by strong earnings growth, I intend to add to my holding very soon.
