£1,000 buys 372 shares in this 8%-yielding dividend income stock!
Last Thursday (30 January), I added to my position in the FTSE 100âs most generous income stock, Legal & General Group (LSE: LGEN). I couldn’t resist its 8% trailing yeld, the biggest on the entire blue-chip index. Thatâs an extraordinary rate of income. But can the shares finally give investors some growth as well?
Since I already have fairly chunky exposure to the insurer and asset manager in my Self-Invested Personal Pension (SIPP), I didnât go mad. I simply invested another £1,000 that was sitting in cash. Still, that means even more income to look forward to when Legal & General pays its next dividend on 4 June.
I just bought Legal & General’s stock
Investors who want to qualify for that payment will need to buy before 23 April, when the shares go ex-dividend. So is it worth buying today?
I also hold insurer Phoenix Group Holdings, whose trailing yield of around 7.3% is the second highest on the index. Despite their similarities, the two stocks had very different years. The Legal & General share price grew just 10% over the last 12 months, just half the FTSE 100 average. Phoenix, by contrast, soared 43%, delivering a total return of roughly 50% including dividends.
Legal & General’s underperforming share price largely explains why the yield’s so high. I bought hoping the shares might play catch-up at some point, but we’re not there yet.
In 2021, Legal & General posted impressive pre-tax profits of £2.6bn. That turned out to be a high point as profits plunged to £939m in 2022 and collapsed again to just £195m in 2023. Profits did recover to £542m in 2024, but itâs easy to see why investors remain sceptical. Especially with earnings per share (EPS) crashing 62%, 43% and 61% over the last three years.
The board expects full-year 2025 EPS growth at the upper end of its 6%-9% target range, which is at least progress. Still, this is a big, steady business that lacks dynamism, and I canât be sure that will change.
FTSE 100 dividend hero
Legal & General operates in a fiercely competitive market, particularly in pension risk transfers. Several brokers have downgraded their rating, and consensus forecasts put the one-year share price target just below 265p. Disappointingly, that’s around 2% lower than today’s 270p.
What I really donât want to see is a dividend cut. I think the payout looks secure, supported by a Solvency II coverage ratio of around 217%. The board plans to return more than £5bn to shareholders over three years through dividends and share buybacks.
Iâve still taken a calculated risk buying more Legal & General shares. My plan is to hold them for the long term, ideally decades, giving dividends time to compound and, with luck, the shares time to wake up too.
My £1,000 investment bought me 372 shares. Legal & General is forecast to pay a dividend of 21.81p per share for 2025, rising to 22.3p in 2026. That should give me income of around £83 from my £1k. And that’s just in year one. In total, I now own 2,521 shares, which could generate roughly £560 in 2026. That’s even better.
With luck, that will keep rising as my reinvested dividends buy more shares and payouts continue to grow. I think Legal & General is well worth considering for income seekers today. Who knows, one day it might even deliver some growth too.
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Harvey Jones has positions in Legal & General Group Plc and Phoenix 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.
