Looking for the best ways to supplement the State Pension? For me, the best is by investing in quality dividend stocks. The plan is to buy shares that rise in value over time, and provide a passive income I can reinvest and then eventually retire on.
My favourite FTSE 100 dividend stock is Legal & General (LSE:LGEN). I first bought this dividend hero for my portfolio in 2023, and have increased my holdings several times since then.
Why? A shareholder payout that’s grown in 15 of the past 16 years, and a dividend yield that’s consistently been more than double the Footsie’s long-term average of 3%-4%.
The question is, can Legal & General shares continue delivering the goods on dividends?
Slower growth
Now it’s time to be honest. Investors haven’t been too impressed with the firm’s more recent dividend plans. Back in mid-2024, it nixed its policy of raising annual payouts at 5% each year, reducing the growth rate to 2% from 2025-2027.
The plan, it said, was to lower the dividend but to supplement this with greater share buybacks. So far, it’s been true to its word, repurchasing £500m of its shares in 2025 versus £200m the year before.
This way, Legal & General plans to return a targeted £5bn in cash to shareholders in a more flexible and growth-friendly way. Many investors looking for dividends to reinvest or live off have been left disappointed. But not me. Want to know why?
8.2% yield
As I say, the greatest dividend shares are ones that can deliver growth as well as dividend income. And the FTSE company’s plans put in a better position to achieve both. This gives it more capital to invest in areas like pensions and asset management, potentially boosting profits and giving it extra firepower to keep its generous dividend policy going (and making worth a closer look).
That’s not the only reason why I’m content with the firm’s new strategy. Even with annual growth dialled down, the yields on Legal & General shares still smash those of almost every other dividend-paying UK share. For 2026, it sits at a mammoth 8.2%.
Doubling the State Pension
At this rate, someone looking to get double the £11,973 State Pension with Legal & General dividends would need 107,724 shares. At 270.4p a share today, that would require an investment of £291,285.70. I’d clearly need to increase my holding from the 4,519 shares I currently own!
But I’m not planning on doing this, as I won’t just buy one stock for income, however great its track record is. Legal & General has tremendous growth opportunities due to changing demographics and investor habits, and a strong balance sheet for more massive dividends.
Yet I’ll never put all my eggs in one basket — that’s far too risky (in this case, dividends could come under pressure during economic downturns). So I’d look to add other quality shares to my portfolio to supplement the State Pension.
