Here’s how to target £9,470 a year in passive income from £10k invested in this FTSE 100 star
Even after a recent price spike, my Legal & General (LSE:LGEN) shares are roughly at the same level as when I bought them in April 2024. Yet, thanks to the delivery of some spectacular dividends, the passive income I’ve received means I’m still sitting on a tasty profit.
I bought in when the Legal & General share price was 250.9p. Today it’s at 251.5p, giving me a capital gain of 0.6p per share. In that time it’s also paid dividends totalling 35.99p per share, giving me a profit of 36.59p for each share and a total return of 14.6%.
The FTSE 100 company has grown its annual dividends steadily since freezing them in the depths of the pandemic. Its long record of (mostly unbroken) payout increases dates back to the early 2010s, giving it a reputation as one of the UK’s greatest dividend shares.
City analysts are confident it will remain a lucrative dividend share for the foreseeable future, too.
9% dividend yield
Over the next three years, Legal & General is tipped to raise the full-year dividend to 21.79p per share in 2025, and to 22.28p and 22.59p per share in 2026 and 2027. It paid a total reward of 21.36p last year.
These prospective figures result in yields of 8.7%, 8.9%, and 9%. To put these figures into context, the Footsie’s long-term average yield sits way back at 3%-4%.
Based on this year’s 8.7% yield, someone investing £10,000 in the business would make £870 in first-year dividends. If the yield remained the same for a decade, they’d receive payouts worth £8,700. Over 30 years that becomes £26,100.
Compound gains
That’s pretty good, I’m sure you’d agree. But, in my opinion, it does still look a little on the light side. That’s because my projection doesn’t include the benefit of compounding, where dividends are reinvested to buy more shares and therefore generate more dividends.
Adopting this strategy, total dividends would be £12,960 over 10 years instead of that £8,700. Again, this assumes that this year’s 8.7% yield continues. And over 30 years, passive income would total £98,100 instead of £26,100.
With that initial £10,000 also factored in, the total value of our Legal & General shares would be £108,800. At this point, there’d be a healthy £9,470 annual passive income.
Dividend hero
However, there are a couple caveats to add here. My calculations above assume that dividends won’t rise or fall over time, and that Legal & General’s share price will similarly fail to move.
In reality, both dividends and share price are certain to change. It seems likely to me that both dividend and share price will grow over the long term. However, the competitive nature of the financial services industry could dampen top-line sales and margins. Returns could also be hampered during economic downturns.
I’m optimistic about the company’s future because demand for retirement, protection and wealth services will likely increase, driving the company’s share price and dividends skywards. The business is targeting core operating earnings per share growth of 6%-9% annually between 2024 and 2027 alone.
I’m also encouraged by Legal & General’s impressive cash generation, which supports its huge dividends. It’s aiming for £5bn-£6bn of cumulative operational surplus over the period.
In my opinion, anyone looking to make a large second income should give Legal & General serious consideration.
The post Here’s how to target £9,470 a year in passive income from £10k invested in this FTSE 100 star appeared first on The Motley Fool UK.
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More reading
- 3 shares that could help a SIPP double in value
- 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?
- See how much an investor needs in a SIPP to earn passive income of £777 a month
- With a £20k Stocks and Shares ISA, here’s how to aim for passive income of £228,688!
Royston Wild 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.
