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The bad news for those holding Legal & General (LSE: LGEN) shares is that performance has been poor. They’re up less than 5% over the last year and only about 15% over five years. The one positive is that they have paid a heap of income along the way.
High income attraction
The trailing dividend yield currently stands at 9.1%, one of the highest on the blue-chip index. That’s far more than even the best-paying savings accounts, and dividends carry another advantage. Companies aim to lift payouts each year to protect investors from inflation and ideally provide some real growth too.
Over the last 15 years, Legal & General’s dividend per share has grown at an average rate of 11.75% a year. Growth has slowed lately, though, and management now expects to lift payouts by just 2% from here. Even so, the yield is forecast to hit 9.26% in 2025 and 9.43% in 2026.
Dividends are never guaranteed, of course. They must be covered by earnings, and here there are some worries. Forecast cover is just one, when investors would prefer to see at least 1.5 or ideally 2. Earnings per share have been sliding for three consecutive years, falling 62%, 43%, and 61%. No wonder the price-to-earnings ratio has soared to above 80. A P/E of around 15 is typically seen as fair value. When I first bought the stock in 2023, it traded at six or seven times earnings. It felt like a bargain then, less so today.
FTSE 100 income play
The insurer remains profitable. First-half results published on 6 August 2025 showed pre-tax profits up 28% to £406m, helped by strong demand for institutional retirement products.
Legal & General’s solvency ratio is steady at 217%, while net debt has dropped from £4.71bn to £3.39bn. Yet broker RBC Markets has flagged a few issues. It notes that profitability in the pension ‘bulk annuity’ market is still under pressure, and warns the outlook for fee income from asset management and retail operations looks weaker. The group trails peers both on price-to-book and return on equity ratios.
Shareholder payouts
Let’s say someone owns 1,696 shares, worth just under £4,000 at today’s price of 235.5p. The shares went ex-dividend on 21 August, and the 6.12p interim dividend will be paid on 26 September. That means a payout of around £103. Reinvesting that could buy another 44 shares, lifting the total holding to about 1,740.
The bigger cheque should come next June. If the final dividend rises 2% from last year’s 15.36p, 1,740 shares deliver about £267. Added to the interim, that’s £370 of income from a £4,000 investment. Which is pretty handy. Any share price growth is on top.
It’s hard to know when Legal & General will get back on track, although I expect high-yielding dividend stocks to look even more attractive when interest rates finally start to fall. I think investors could consider buying with a patient outlook. With luck, they’ll get plenty of income while they wait for the shares to kick on. Yet, it’s still trailing FTSE 100 rivals like Aviva, M&G, and Phoenix Group Holdings, and investors might want to explore them first.
This story originally appeared on Motley Fool
