The FTSE 100 is filled with phenomenal dividend stocks for investors to pick from. The index as a whole only offers a 3.2% yield today. But the story is very different for some of its constituents.
Take Legal & General (LSE:LGEN) as a prime example. With a staggeringly high payout of 9.2%, it’s one of the most popular income stocks to buy right now. That’s according to AJ Bell’s latest buy & sell data.
Just imagine, if an investor concentrated their entire £100,000 portfolio in this single stock right now.
Obviously, an investor putting all their eggs in one basket is a very risky move. But if Legal & General continue to reward shareholders with such an impressive payout, this level of concentration could generate enormous passive income overnight. It could be around £9,220 when crunching the numbers.
The income opportunity
Normally, when a dividend yield is this high, it means the stock price has recently fallen off a cliff. But in the case of Legal & General, that hasn’t happened.
In fact, the share price essentially flat in the last 12 months. But the dividends have been getting hiked for the last five years in a row.
Even with management hiking dividends and committing to a £1.2bn share buyback scheme, shareholder payouts remain pretty well covered by cash flow.
A booming pension risk transfer (PRT) market is enabling Legal & General to bolster its earnings even with wider UK macroeconomic challenges. The PRT market is currently on track to hit £50bn in 2026, up from £40bn in 2025. And Legal & General is already commanding £17bn of these incoming deals.
At the same time, its asset management arm also recently hit a critical inflexion point. It has annualised new revenues re-entering positive territory, paving the way for future wider margins.
On the surface, cash flows are seemingly set to expand further along with dividends… so what’s the catch?
Where’s the risk?
As of December 2025, Legal & General’s Solvency II stood at 210%. That’s just over double the required regulatory among signalling strong health. But what’s potentially concerning is that this has actually dropped from 232% in 2024.
This downward trend comes as a result of management’s aggressive expansion into the PRT market, which consumes capital in the short term. Alone, that’s not a major problem. However, when combining a falling solvency ratio at a time when the private credit markets are also stressed, analysts are getting nervous.
This fear is only compounded by the wider weakness in the UK economy. After all, insurance and asset management products are ultimately cyclical, with demand often falling drastically during a recession.
What’s the verdict?
The high yield offered by this FTSE 100 dividend stock is a reflection of the uncertainty surrounding the underlying business.
Legal & General could emerge unscathed, rewarding risk-taking investors with an enormous passive income stream as well as capital gains. But sadly, the opposite is also true.
That’s why investors considering taking the leap should do so with a diversified portfolio. The shouldn’t go for a concentrated one, in my opinion, no matter how tempting the yield might be.
