Legal & General (LSE:LGEN) shares are sitting at the top of the list of most popular UK stocks to buy right now, according to the latest data from AJ Bell.
This FTSE 100 giant has always been a UK favourite. But its popularity seems to be growing even bigger as retail investors rush to lock in the impressive 8.9% yield being paid out. And with a long track record of not only maintaining dividends but increasing them as well, this excitement’s quite understandable.
In fact, just to highlight how substantial Legal & General’s dividend policy is, over the last five years, the share price has actually fallen by close to 15%. Yet thanks to shareholder payouts, the actual return on investment is closer to +25%. And anyone who put £500 to work five years ago is now sitting on £627.
So the question now becomes, will Legal & General shares continue to be a winning investment in 2026 and beyond?
Reasons to consider buying
Looking at the underlying business, there are quite a few catalysts to get excited about as well. For example, one massive tailwind that many UK insurance and asset management groups have been capitalising on recently is the pension risk transfer (PRT) market.
Thanks to higher interest rates, higher payouts from financial products like Legal & General’s annuities have enabled corporate pension schemes to de-risk their future liabilities.
Subsequently, the business has seen a surge in demand. But unlike many of its peers, Legal & General’s PRT presence extends beyond just the UK and goes into the US market as well – an opportunity that’s estimated to be five times larger.
What to watch
While Legal & General’s annuities business is booming, it’s not a risk-free endeavour. The company is effectively taking on the liabilities of corporate pension schemes and using a portfolio of bonds and private credit assets to not only cover these liabilities but also try and profit from the excess return they generate.
The only trouble is, profit isn’t guaranteed. And if its investments underperform due to bond defaults or private credit impairments, Legal & General still has to pay the fixed amount promised as part of its annuities.
That’s a massive problem if a severe recession comes knocking, directly pressuring the health of the balance sheet as well as gobbling up its all-important Solvency II regulatory capital. And it’s why institutional investors have been a bit more reluctant to snap up shares.
Put simply, even though the dividends are currently covered, that could quickly change if economic conditions suddenly take a turn for the worse.
The bottom line
Legal & General has a long track record of navigating tough macroeconomic conditions, turning the business into a reliable compounding machine. But the last time the business had to endure a widespread crisis in 2008, dividends were aggressively cut – a risk that’s very real today if the geopolitical landscape continues to escalate.
With that in mind, conservative investors may want to look elsewhere for passive income opportunities. But for those with a higher risk tolerance, Legal & General shares could be worth a closer look, in my opinion.
