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1 FTSE 100 dividend stock with a 6% yield that I’d buy right now

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Last year, several large FTSE 100 companies decided to cut dividends due to the impact of the pandemic. This was to retain earnings and cash within the business in order to help operations. However, not all companies suffered during this period, and some continued to pay out funds to investors. Legal & General (LSE:LGEN) is one example in this regard. That underlines why I think it’s a top FTSE 100 dividend stock that’s worth me buying now.

A resilient 2020

Legal & General is a financial services company that operates mainly in the asset and investment management space. The asset management arm is focused on markets here in the UK and in the US. The investment management arm is broader and has operations in many countries around the world. 

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Despite profit after tax falling 12% last year due to the pandemic, there were multiple positives to be taken away from it. What impressed me was the growth in the pension space, particularly in the US. It generated over $1.6bn in premiums in 2020, up 40% from 2019. 

I think the outlook for 2021 remains positive as well. The company noted that it expects a lot of “repeat buyers” with key products, and described the UK as having a “healthy outlook”.

Over the past year, the share price has risen around 43%. I think this attests to the resilience shown by the business during a tough period. Besides this, Legal & General also acts as a FTSE 100 dividend stock. The dividend yield currently sits at 6.3%. This puts it inside the top 10 highest yields available in the FTSE 100 index right now.

Is this dividend stock sustainable?

With interest rates low and some companies cutting dividends, a FTSE 100 stock with a dividend yield above 6% is high. I think that it’s sustainable though.

The credit portfolio has had no defaults thus far, and is being actively managed. So I don’t see any immediate risk of having to tie up reserve funds due to potential bad debt. Of course, this could change, but at the moment it isn’t something that concerns me.

Although not directed related to the sustainability of dividend payments, the business is clearly very solvent. Due to EU regulations, life insurers have to meet certain solvency ratios. This measures the amount of capital held versus liabilities. It should be enough to ensure that clients have a high chance of getting money back in the case of default.

As of the end of Q1 this year, Legal and General estimated its Solvency II ratio to be at 192%, much higher than the required minimum. This was also up from the 2019 figure. This gives me confidence that the company isn’t in distress, and should continue to be a reliable FTSE 100 dividend stock.

One potential downside with buying this stock for dividends is that there’s unlikely to be any large upside in dividend payouts in coming years. A new five-year strategy piece commented that from 2021 onwards the board intends to grow dividends “at low-to-mid-single-digits”. So from this angle, I could be better off finding a company that intends to grow dividends substantially going forward.

Overall, I think Legal & General is a solid FTSE 100 dividend stock and would look to buy it for my portfolio.

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jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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