How much passive income can Legal & General shares generate over 10 years?

Legal & General (LSE:LGEN) shares don’t typically offer much in the way of capital appreciation. Over the past five years, the stock has gained 12%. That’s just over 2% per year. And remember, stocks were quite depressed in 2020 due to the pandemic.

However, the insurer continues to offer a very strong dividend. An investor holding shares throughout 2020 to 2024 would have received a total of 97.09p per share in ordinary dividends.

This is based on the sum of annual dividend payments: 17.57p in 2020, 18.45p in 2021, 19.37p in 2022, 20.34p in 2023, and 21.36p in 2024. For every 1,000 shares owned, this equates to £970.90 in cumulative dividends over the period. This would have cost around £2,230 to buy five years ago.

The steady increase in annual payouts, averaging around 5% growth each year, highlights a consistent and rewarding income stream for long-term shareholders.

Is the dividend sustainable?

The dividend outlook for 2025 to 2027 is attractive but sustainability is somewhat questionable. Payout ratios are projected below at 89.6% in 2025, 89.4% in 2026, and 82.8% in 2027.

This indicates that dividends are covered by earnings, but typically a ratio below 50% is considered strong.

Earnings per share (EPS) are forecast to rise steadily from 24.32p in 2025 to 27.28p in 2027, supporting the modest annual increases in dividend per share from 21.79p to 22.59p.

While this payout ratio is fairly weak, insurance companies do typically have great cash flows. In other words, they’re rarely short of cash to pay the stated dividend.

Moreover, management’s willingness to slightly increase dividends each year reflects confidence in the underlying business and its cash generation.

So, while I wouldn’t bank on the Legal & General dividend increasing year after year, there’s some cause for optimism. What’s more, insurance is a necessity. That provide an additional layer of security for investors.

Holding 1,000 shares over these next three years would generate approximately £666.60 in total dividends. This provides investors with a consistent and attractive income stream, assuming the company meets its projected payouts.

The next 10 years

Starting from a 21.36p dividend per share in 2024, Legal & General plans a 5% increase in 2025, followed by 2% annual growth thereafter. Over the next decade, this steady rise means investors could receive a total of around 246.9p per share in dividends.

For holders of 1,000 shares, that adds up to approximately £2,469 in dividend income by 2034. That’s very considerable and would also equal the value of the investment today.

My own portfolio, however, is geared towards growth and I typically invest in companies that reinvest their earnings to deliver more growth. That’s a form of compounding. As such, I’m less inclined to look at dividend stocks like Legal & General. However, I do believe it’s worthy of broad consideration.

The post How much passive income can Legal & General shares generate over 10 years? appeared first on The Motley Fool UK.

More reading

• See what £10k invested in Legal & General shares in January is worth today
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• How long would it take an owner of Legal & General shares to get their money back in passive income?
• This FTSE 100 dividend gem now yields a stunning 8.6% a year, so should I buy more?

James Fox has no positions in any of the companies 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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