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As a way of generating passive income, dividend shares from the FTSE 100 have always been popular. This is particularly the case for those offering above-average yields.
But there’s a reason for thinking that demand for these could take off this year.
Big hitters
A quick check with my data provider reveals that the following top-tier companies currently offer forecast dividend yields over 6%.
- Legal & General (LSE: LGEN)
- Phoenix Group Holdings
- M&G
- Land Securities Group
That might not seem like many. But remember that the FTSE 100 had an excellent 2025. When share prices rise, yields fall (all else remaining equal).
For comparison, the index has an average yield of 3% — not dissimilar to the interest rates being offered by savings accounts.
Although we’re not equipped with a crystal ball, there’s a reason for thinking the latter could fall even lower in 2026 based on recent events.
Cuts-a-plenty
In December last year, the Bank of England elected to cut the base rate down to 3.75%. This brought the number of cuts to six since August 2024.
Justifying its decision, the Monetary Policy Committee (MPC) stated that inflation had fallen substantially from where it stood three years ago and now sat at 3.2%. Moreover, its members think this will continue. This makes another reduction look possible, which will also brings down the saving rates offered on bank accounts.
Should this be the case, anyone with spare cash may want to look elsewhere to get the most bang for their buck.
Monster dividend yield
Financial services provider Legal & General is a particularly interesting proposition right now. Despite rising 14% in 2025, the shares lagged the impressive gain made by the FTSE 100 index.
However, the company’s generous dividend policy made up for this.
I imagine this attraction will continue to be the case in 2026. At the current price, analysts have the stock yielding a massive 8.5%.
Another appeal is that the £15bn cap has a great record of raising the amount of cash returned to investors in most years. The only recent disappointment was in 2020. But given that the world was in the grip of a pandemic at the time, I think that we can let that one slide.
Not risk-free
Of course, it would be decidedly un-Foolish to assume that dividends are guaranteed. Legal & General faces challenges, just like any business.
Among these are the level of competition in asset management, retirement planning and insurance (and the impact this can have on margins). For this reason, it’s unlikely to ever experience huge growth over a short period of time. Any hikes to cash distributions are likely to remain modest as a result.
Profits are only expected to just about cover the total dividend in 2026 as well. So, there’s a risk of a cut if the company seriously disappoints on earnings in some way.
Worth considering?
These concerns aside, I reckon Legal & General is a decent candidate to research for an income-focused portfolio and as a way for investors to make their money work harder in 2026 than it would in a bog-standard bank account.
But it’s certainly not the only dividend stock worth considering. Many lower-yielding members of the market might also deliver above-average growth.
This story originally appeared on Motley Fool
