Last Thursday (30 January), I added to my position in the FTSE 100’s most generous income stock, Legal & General Group (LSE: LGEN). I couldn’t resist its 8% trailing yeld, the biggest on the entire blue-chip index. That’s an extraordinary rate of income. But can the shares finally give investors some growth as well?
Since I already have fairly chunky exposure to the insurer and asset manager in my Self-Invested Personal Pension (SIPP), I didn’t go mad. I simply invested another £1,000 that was sitting in cash. Still, that means even more income to look forward to when Legal & General pays its next dividend on 4 June.
I just bought Legal & General’s stock
Investors who want to qualify for that payment will need to buy before 23 April, when the shares go ex-dividend. So is it worth buying today?
I also hold insurer Phoenix Group Holdings, whose trailing yield of around 7.3% is the second highest on the index. Despite their similarities, the two stocks had very different years. The Legal & General share price grew just 10% over the last 12 months, just half the FTSE 100 average. Phoenix, by contrast, soared 43%, delivering a total return of roughly 50% including dividends.
Legal & General’s underperforming share price largely explains why the yield’s so high. I bought hoping the shares might play catch-up at some point, but we’re not there yet.
In 2021, Legal & General posted impressive pre-tax profits of £2.6bn. That turned out to be a high point as profits plunged to £939m in 2022 and collapsed again to just £195m in 2023. Profits did recover to £542m in 2024, but it’s easy to see why investors remain sceptical. Especially with earnings per share (EPS) crashing 62%, 43% and 61% over the last three years.
The board expects full-year 2025 EPS growth at the upper end of its 6%-9% target range, which is at least progress. Still, this is a big, steady business that lacks dynamism, and I can’t be sure that will change.
FTSE 100 dividend hero
Legal & General operates in a fiercely competitive market, particularly in pension risk transfers. Several brokers have downgraded their rating, and consensus forecasts put the one-year share price target just below 265p. Disappointingly, that’s around 2% lower than today’s 270p.
What I really don’t want to see is a dividend cut. I think the payout looks secure, supported by a Solvency II coverage ratio of around 217%. The board plans to return more than £5bn to shareholders over three years through dividends and share buybacks.
I’ve still taken a calculated risk buying more Legal & General shares. My plan is to hold them for the long term, ideally decades, giving dividends time to compound and, with luck, the shares time to wake up too.
My £1,000 investment bought me 372 shares. Legal & General is forecast to pay a dividend of 21.81p per share for 2025, rising to 22.3p in 2026. That should give me income of around £83 from my £1k. And that’s just in year one. In total, I now own 2,521 shares, which could generate roughly £560 in 2026. That’s even better.
With luck, that will keep rising as my reinvested dividends buy more shares and payouts continue to grow. I think Legal & General is well worth considering for income seekers today. Who knows, one day it might even deliver some growth too.
