Should investors consider Legal & General shares for passive income?
For investors trying to build passive income from the stock market, Legal & General (LSE: LGEN) offers one of the richest dividend yields in the FTSE 100 Index.
The stock is currently paying 8%, on top of some sizeable share buybacks in recent years. I wanted to investigate if this Footsie financial powerhouse is worth considering for passive income investors in 2026.
What is happening with the Legal & General share price?
The shares are trading at 275p as I write on 5 February, which gives the group a market cap of £15.6bn. The last 12 months have seen the stock climb 16% higher, helped by steady results and investor demand for income stocks as interest rates have fallen.
Effective management has played its part in the recent gains. Core operating profit for 2024 came in at around £1.6bn, a year-on-year increase of 6%.
The companyâs Solvency II capital generation was £1.8bn with a solvency coverage ratio of 232%, indicating a healthy financial position. That compares favourably to peers like Aviva with an underlying Solvency II capital generation of £1.5bn and a 203% solvency coverage ratio.
For income seekers, the dividend story is key. The companyâs full-year dividend for 2024 was 21.36p per share, up 5% year on year.Â
The Legal & General board has provided guidance for dividend growth of 2% per year from 2025 onwards. That’s alongside a £500m share buyback programme for 2025 and an intention to return more than £5bn to shareholders over three years through dividends and repurchases.Â
Those additional returns have been supported by disposals of non-core businesses, including its Cala housebuilding arm and US protection unit.
Valuation
On backward-looking numbers, Legal & General looks incredibly expensive, with a trailing price-to-earnings (P/E) ratio of nearly 60. Thatâs well above Avivaâs 29.9 trailing P/E, for example.
Forward estimates paint a different picture. The shares trade on a forward multiple of 11 times earnings, a discount to the Footsie average of around 13.
The income metrics are where the shares stand out. The companyâs 8% yield is higher than both the Footsie average of 3.5% and peers like Aviva (5.6%).
Dividend cover is also high, sitting at nearly 1.8 times. With the board willing to return cash to shareholders, the stock looks tasty as a potential yield play.
My verdict
For investors who want shares that can support a long-term passive income strategy, the company looks to offer a rare combination of high yield, clear guidance on future payments, and meaningful share buybacks.
Of course, there are risks involved. The company operates in a heavily regulated industry, and its profitability is highly exposed to interest rates and changes in credit markets.
Competition in the pension risk transfer space is also heating up as global asset managers and insurers chase the same pool of corporate schemes, impacting pricing dynamics.
While diversification is key, I think the company’s 8% yield and strong market position make it worth considering for yield-hungry investors.
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Ken Hall 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 </a>investors.
