Legal & General (LSE: LGEN) shares have been languishing for the past five years. But that helps boost the forecast dividend yield to a lofty 8%. Sentiment’s clearly been against the stock, though it could be changing.
The company’s big in investment management. And that’s the kind of business that can hurt in tough economic times. But I’m struck by the stock’s response to the current Middle East crisis.
Even at the worst of the dip in March, Legal & General shares only fell back to where they were in late 2025. And as talks with Iran are under way — even tentatively — the share price is back close to its recent 52-week high.
If investors are warming to the stock, I wonder if that 8% dividend yield might not be around much longer?
Lagging the competition
In the chart above, I’ve highlighted a couple of other companies that compete in the insurance and investment spaces. We can see Aviva and M&G have both beaten Legal & General hands down in stock price gains. Their forecast dividend yields aren’t too shabby either — Aviva’s predicted at 6.1%, with M&G on a forecast 6.8%.
Seeing Legal & General falling behind does concern me. But then again, look a bit closer and we see all three pretty much neck and neck until around a year ago. Maybe investors just haven’t caught on yet, and we could have gains still to come here?
Legal & General has actually pulled ahead of the other two in the past month, as the Iran conflict has been unfolding.
Dividend prospects
I’m really not going to suggest trying to time the market here. Instead, I’m thinking about why sentiment might not have turned positive for Legal & General the way it has for the others. And it might be due to aspects of the dividend.
L&G’s 2025 earnings weren’t close to covering that year’s dividend, only matching 44% of the payout. The other two didn’t cover theirs either, but they came closer at a bit over 60%. Looking forward, forecasts suggest cover all round from the trio — not too strong, but really not bad. I don’t see much to choose between them on that front.
But the red flag I see is in forecast earnings, which actually look like declining slightly between 2026 and 2028 at Legal & General. By contrast, analysts expect rising earnings from Aviva and M&G.
What’s the verdict?
This highlights what I see as the main risk with stocks like this. They can be very cyclical. And there often isn’t much between being able to cover a high dividend and not making it. At least Legal & General hasn’t had to cut its dividend in the past decade. And nor has M&G, though Aviva shareholders did suffer a cut in 2019 as part of the company’s turnaround strategy.
So do I think dividend investors should consider Legal & General shares now? I do, along with the other two too.
