Legal & General (LSE: LGEN) shares come with an absolutely stunning rate of income. Today, the trailing yield is 8.66%, the highest on the entire FTSE 100. That’s roughly double what savers can get from a best-buy savings account. So what are we waiting for?
Actually, investors aren’t waiting. Legal & General is currently the second most bought stock in the UK, according to AJ Bell. It’s beaten only by Rolls-Royce. So is this a stone cold, no-brainer buy?
Typically, high yields like this one are seen as risky. There’s a danger shareholder payouts become unsustainable, as the underlying business struggles to generate the cash flows required to fund its largesse.
Is that massive income sustainable?
But looking at its dividend history, Legal & General seems good for it. The board has increased shareholder payouts every year this millennium but three. It cut them in 2008 and 2009, during the financial crisis. And it froze dividends in 2020, during the pandemic. But those were exceptional circumstances. Otherwise, it looks committed to rewarding long-term investors. Over the last 15 years, payouts have grown at an impressive compound annual rate of 10.7%.
However, that’s slowing. Dividend growth has slipped to 5% a year since the pandemic, and will now slip further to 2%. As inflation spikes due to the Iran crisis, this means the value of the dividend will fall in real terms. But it’s still a stellar rate of income.
In full-year 2025, Legal & General boasted a solid Solvency II coverage ratio of 210%. That was down from 232% in 2024. However, that was mostly due to the impact of returning capital to shareholders via a record £1.2bn share buyback, and the capital strain from writing new, high-volume pension risk transfer (PRT) business. Overall, the balance sheet looks solid. The board will return £2.4bn to shareholders over the next year.
Should income seekers go all in on this stock?
Let’s say an investor really went for it, and chose to generate an income equivalent to the full new State Pension of £12,547.60 a year, purely from this one stock. I wouldn’t recommend doing that as diversification is essential, but I’m interested to see the results.
In 2026, Legal & General looks set to pay a total dividend of 22.23p per share. Given that, an investor would need to buy 56,444 shares. At today’s price of around 251p, that would cost them a hefty £141,676.
Our investor would be a need a huge portfolio to do that safely. It’s always better to spread the money around, especially since the Legal & General share price performance has been disappointing. It’s up just 4% over the last year, and down 11% over five. What investors gain in income they’ve sacrificed in growth. Also, as the UK’s biggest asset manager, with £1.2trn to look after, it’s vulnerable to today’s stock market volatility.
Of course, the shares could go on a blistering run at some point, so investors could get growth as well. I suspect they will at some point, but I’ve no idea when. Either way, Legal & General is a compelling income stock, and well worth considering as part of a balanced portfolio. But I wouldn’t go all in.
