An 8.7% forecast dividend yield! 1 of the best FTSE income stocks to buy today?
FTSE 100 financial giant Legal & General (LSE: LGEN) remains one of my top stocks to buy for huge dividend income generation over time.
Its near-8% yield is already one of the highest in the top index — far above the marketâs longârunning 3%-4% average.
But analystsâ consensus forecasts are that strong earnings growth in the coming years will drive its dividend yield even higher.
So how much can I make from the stock over the long term?
Whereâs the growth coming from?
A risk to the firmâs earnings is any further surge in the cost of living. This could cause customers to cut back on their insurance coverage and investments. However, analysts project that its earnings will grow by an annual average of 19% over the medium term at least.
Legal & Generalâs results over the past year showcase the fundamental drivers that can keep earnings growing for years. Its full-year 2024 results showed reported 6% year-on-year growth in core operating profit to £1.62bn. Core operating earnings per share (EPS) also rose 6% to 20.23p.
These rises reflected the continued expansion of Legal & Generalâs Retirement Solutions arm. Demand for bulk annuities remains structurally strong as UK companies de-risk their pension schemes.
2024 also saw the firm generate £1.8bn of Solvency II capital and maintain a robust 232% coverage ratio. This underlines its huge financial resilience, given that the minimum industry standard ratio’s 100%. It also announced a £500m share buyback, underlining the balanceâsheet strength that supports future investment and earnings expansion.
Asset Managementâs revenue rose 4% to £967m, despite lower average assets under management. The increase reflected a pivot toward higherâmargin products, seen in the increase in the average fee rate from seven basis points (bps) to 8bps.
This division looks well-positioned for further growth, supported by rising fee rates and demand for specialist fixedâincome strategies.
How much dividend income?
Consensus analystsâ forecasts are that dividends will rise to 22.2p this year, 22.7p next year and 23.4p in 2028. These would generate respective dividend yields of 8.2%, 8.4%, and 8.7%, based on the current £2.70 share price.
So investors considering a £20,000 holding in the stock could make £27,589 in dividends after 10 years and £249,432after 30 years.
These numbers assume the forecast 8.7% yield as an average, although dividend yields can go down as well as up. They also factor in the dividends being reinvested back into the stock to harness the turbocharging power of dividend compounding.
By the end of the 30 years (the conclusion of a standard long-term investment cycle), the holding would be worth £269,432. And this would be paying a yearly income from dividends of £23,441!
My investment view
Legal & Generalâs potentially huge, long-term dividend income is why I bought the shares in the first place. Its combination of a high yield, strong capital generation and consistent earnings growth keeps it firmly on my list of stocks to buy for long-term income.
With dividends forecast to rise, the compounding potential remains one of the most compelling attractions for patient investors to consider, I think.
I also have my eye on other serious high-yield opportunities as well.
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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.
