Across the entirety of the FTSE 100, Legal & General (LSE:LGEN) shares stand out in 2026. Why? Because they currently offer the largest dividend yield in the index — at a staggering 8.1%.
That means for every £1,000 invested, shareholders can earn £81 in passive income a year. And with the share price also up 20% over the last 12 months, there’s seemingly even more profits coming from capital gains as well!
So is this a no-brainer UK stock to buy in 2026? Or could it be a hidden trap luring investors astray? Let’s find out.
The bull case
As one of the UK’s largest financial services and asset management firms, Legal & General shares are often viewed as a relatively stable ‘bond-equivalent’ income stock. In fact, excluding the pandemic, where dividends were held steady, shareholder payouts have increased every year since 2009 by an average of 11.8%.
This consistent and reliable passive income is one of the leading reasons why Legal & General shares are popular among UK retail investors. And in 2026, that doesn’t seem to have changed.
Thanks to higher interest rates re-igniting the institutional pension risk transfer (PRT) market, the company’s earnings have continued expanding at a robust pace over the last few years. In fact, over £5.2bn of PRT volumes have already been handled by Legal & General throughout 2025, with more expected in 2026.
Meanwhile, over on the asset management side of the business, thanks to popular new fund launches and partnerships, the firm’s annualised net new revenue jumped by £15m across the first half of 2025. While not ground-breaking, this steady expansion further pivots the groups revenue stream towards higher-margin products, paving the way for stronger profit growth in the long run.
In both cases, earnings growth is being supported. And since earnings ultimately fund dividends, the high dividend yield of Legal & General shares looks quite attractive.
The bear case
While long-term trends of potential earnings expansion are encouraging, it’s important to recognise that this comes with significant macroeconomic uncertainty.
Legal & General has close to £1.2trn of assets under management – a large chunk of which is highly sensitive to changes in interest rates and other economic factors. Should rising unemployment in the UK lead to a recession, a wide range of asset classes like stocks and bonds could suffer, limiting the group’s fee-earning opportunities.
Given that Legal & General’s cash flows currently fall short of the amount of dividends being paid, shareholder payouts are already vulnerable to being cut.
The company’s currently using its own financial reserves to maintain and grow dividends in the short-term due to its confidence that earnings will improve later on. But sadly, there’s no guarantee this will actually happen, especially if economic conditions continue to deteriorate.
The bottom line
The investment thesis surrounding Legal & General shares is a bit mixed. And the high dividend yield is a reflection of the wider macroeconomic risks that management has little control over.
Personally, it isn’t something I find tempting to add to my passive income portfolio. But for more ambitious income investors, Legal & General shares could still be worth a closer look, given the 8% payout on offer today.
