I’m targeting £26,515 a year in retirement from £20,000 in this passive income gem!
I bought passive income star Legal & General (LSE: LGEN) a few years ago with an eye on my retirement.
Even then it was clear to me that if I wanted to actually enjoy my âgolden yearsâ I shouldnât rely on the State Pension.
Since then the insurance and investment firm hasnât disappointed â generating consistently high returns for me. This has been with minimal effort â hence the âpassiveâ income label.
The key question is, can it keep delivering big dividend income for me into retirement?
The engine behind rising dividends
The powerhouse behind any companyâs dividends is earnings growth. This generally results in a bigger pool of cash to reward shareholders, including through dividends.
Legal & Generalâs 12 March 2024 results showed operating profit up 6% year on year to £1.616bn. Operating earnings per share (EPS) rose in tandem to 20.23p.
Its subsequent 6 August H1 2025 results showed operating profit rise again by 6% — to £859m. Meanwhile, operating EPS jumped 9% — to 10.94p.
Overall, analysts forecast that its earnings growth will be a stunning 27.2% a year to the end of 2027 at minimum.
A strategic earnings catalyst
A risk to its earnings is any failure to capitalise on its February deal with Japanese insurance giant Meiji Yasuda. This saw the Asian firm spend $2.3bn (£1.8bn) to secure a 5% stake in Legal & General.
It also took a 20% economic interest in the UK firmâs fast-growing US Pension Risk Transfer business. This involves a company being paid by other firms to take over the running of their pension schemes. The potential here is enormous, as around $3trn of defined benefit pension schemes have yet to be transferred.
That said, Legal & General expects significant earnings growth to result from the strategic partnership. That includes from operational streamlining following the sale of its US protection business, and from leveraging Meiji Yasudaâs (which has close links with L&G) footprint across Asia-Pacific.
Rising dividend yield forecasts
Legal & General paid a dividend of 21.36p in 2024, giving a dividend yield on the current £2.44 share price of 9%. This is nearly triple the present FTSE 100 average of 3.1%.
As good as this is, analysts expect the payouts to rise, and the dividend yield too. Specifically, the forecasts are for dividends of 21.8p this year, 22.2p next year, and 22.6p in 2027.
These would generate respective yields on the current share price of 9.2%, 9.4%, and 9.5%.
How much income for retirement?
So a further £20,000 invested in Legal & General would make me £29,027 in dividends after 10 years. This is based on the current 9% yield, with none of the projected increases applied. It also incorporates reinvesting the dividends back into stock (dividend compounding).
On the same basis, the dividends would rise to £100,183 after 20 years, and to £274,612 after 30 years. The total value of the holding at that point (including the £20,000 initial investment) would be £294,612.
And at that point I would be drawing an annual dividend income of £26,515! Thatâs why Iâll be adding to my existing holding in Legal & General.
I am also keeping a close eye on several other high-yielding FTSE firms that have caught my attention.
The post Iâm targeting £26,515 a year in retirement from £20,000 in this passive income gem! appeared first on The Motley Fool UK.
Should you invest £1,000 in Legal & General Group Plc right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Legal & General Group Plc made the list?
More reading
- I asked ChatGPT to build me the perfect portfolio for earning a second income and it said…
- I asked ChatGPT to build the perfect passive income portfolio. It saidâ¦
- Got a spare £100 a month? If so, here’s a way to target £10k in passive income
- How much do you need in an ISA to aim for a weekly passive income of £231?
- Buying 4,655 shares in this ultra-high-yield FTSE 100 income stock can give me £1k a year
Simon Watkins has positions in Legal & General Group Plc. 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.
