Investing in Legal & General (LSE: LGEN) shares may offer an attractive opportunity for those looking to earn passive income. The company has consistently ranked at the top of the FTSE 100 dividends leaderboard, boasting an impressive dividend yield of 8.81% over the past year.
Understanding Legal & General’s Dividend Performance
A high dividend yield can often indicate a risk of reduction or cancellation, yet Legal & General seems to defy this trend. Their strategic focus on pension services positions them advantageously in a growing market, as the UK population ages and life expectancy continues to rise. In fact, the average life expectancy in the UK surpassed 82 years this year.
Growth Strategy and Future Goals
Legal & General is shifting towards a model that emphasizes ‘fee-based earnings,’ aiming for 40% of its Retail profits to derive from this source by 2034, up from 15% in 2024. This transition is crucial as it enhances revenue predictability and lowers capital intensity. Such stability is essential for maintaining dividends reliably.
Historical Dividend Consistency
- Dividends have been increased almost annually since the year 2000.
- Despite potential risks from unforeseen events, such as the pandemic, the firm shows resilience in its payouts.
Share Price Considerations
While Legal & General’s dividends remain competitive, the stagnant share price since 2014 raises concerns. Analysts are divided, with only two recommending a buy on this stock. However, projections indicate that dividends might increase over the next two years, potentially raising the yield to about 9.2% by 2027 without reinvesting.
Investment Potential
For investors considering a stake, purchasing 777 shares would require an initial investment of £1,878. Based on current forecasts, this investment could yield approximately £170 in the coming year. With reinvestment and the potential for annual increases, this could evolve into a steady stream of passive income.
In summary, Legal & General presents a compelling case for dividend hunters willing to navigate the intricacies of share performance while capitalizing on a robust income stream. The combination of a solid dividend yield and a strategic shift towards fee-based earnings makes it a noteworthy option for long-term investors.
