Legal & General (LSE: LGEN) shares were one of my first investments after I left university in 1988. I bought it on the recommendation of my grandfather, who knew a thing or two about such things. It was just as well, because at the time I knew nothing worth knowing about anything, including stocks.
The shares have since generated a huge amount of dividend income for me, which was reinvested back into them. Again, this was done at the recommendation of my grandfather, who said this would “compound your gains”.
When my son left university recently, Legal & General was the first name I mentioned when he said he wanted to ‘invest in something’.
So, why is it still my top pick after all these years?
Consistently high dividend yields
One reason is that the firm has continued increasing dividend payouts to shareholders as and when it can.
The process was formalised in a ‘progressive dividend policy’ since the 2007/2008 financial crisis, only pausing during Covid. The policy involves payouts rising at least in line with earnings per share, but not being reduced if earnings decline.
In the past five years, the dividend has risen 18% — from 2021’s 18.45p to 2025’s 21.79p. These payouts generated average annual dividend yields of 6.2%, 7.8%, 8.1%, 9.3%, and 8.3%.
At the current price of £2.48, 2025’s 21.79p payout gives a mighty dividend yield of 8.8% — almost triple the FTSE 100‘s 3.1%!
Rising dividends forecast
Earnings growth powers any firm’s dividends over time. But a risk to Legal & General is any sustained surge in the cost-of-living crisis that may cause customers to close insurance or investment accounts. Not to mention the group also has to tackle a high degree of competition within this sector that can apply pressure to profit margins over time.
However, the consensus forecast of analysts is that its earnings will grow by an average 7% a year to end-2028. Analysts forecast this will underpin dividend rises to 22.2p this year, 22.7p next year, and 23.4p in 2028.
These will generate respective annual dividend yields of 9%, 9.2%, and 9.4% — among the highest in any FTSE stock.
How much dividend income?
My £20,000 holding in Legal & General would make £31,012 after 10 years and £311,870 after 30 years. The period is widely regarded as a standard investment cycle — ranging from first investments around 20 to early retirement options around 50.
The numbers are based on the average 9.4% forecast yield, although this can change over time. It also features the dividends being reinvested, as I was told to do all those years ago. I now know the process as ‘dividend compounding‘, which does indeed have a turbocharging effect on dividend gains over time.
At the end of the 30 years, the value of my holding (including the £20,000 core investment) would be £331,870. And this would be paying me an annual income (from dividends) of £31,196!
My investment view
Legal & General is precisely the sort of share that allows for a better retirement and for growing wealth across generations, in my view.
It is founded on strong earnings growth, which is prioritised by the firm into rewarding its shareholders through hefty dividends.
Consequently, I will be buying more of the shares very soon and urging my son to do the same.
