Is the 7.67% yield on Legal & General shares too good to be true?

Legal & General (LSE:LGEN) shares are currently (2 October) offering a return over twice that of the FTSE 100. And with the pension and savings group pledging to increase its dividend by 2% per annum over the next two years, the yield could rise further still.

But how sustainable is this? Indeed, could the stock be a dangerous value trap? Let’s investigate.

An impressive track record

Legal & General’s been steadily increasing its dividend in recent years:

• 2025: 21.79p
• 2024: 21.36p
• 2023: 20.34p
• 2022: 19.37p
• 2021: 18.45p

As a result, its 2025 payout was 18.1% higher than in 2021.

Possible warning signs

However, some analysts have claimed the dividend’s unsustainable. Why? They point out that in 2024 and 2025, the payout was higher than the group’s core operating earnings per share of 19.2p and 20.93p respectively. In simple terms, it’s paid 7.5% more than it’s earned.

Unfortunately, the group’s accounts — like others in the same industry — are notoriously difficult to interpret. Accounting standards require complicated adjustments to be made to ensure that the profit from insurance contracts is recognised over time rather than upfront. This often leads to a significant disparity between the group’s cash flows and its earnings. That’s why analysts focus on cash as well as profit.

But a look at Legal & General’s cash flow statement over the past two years doesn’t really help when assessing the sustainability of its dividend, which cost £1.247bn last year. For example, in 2025, the group’s net cash inflow from operating activities was £4.548bn. The year before, it was an outflow of £4.446bn.

Ultimately, we need to consider whether the group’s increasing its net worth. In other words, is it increasing shareholder value?

Again, I have some concerns here. As the table below shows, the group’s accounting value (equity) was £3.1bn lower at the end of 2025 than in 2021.

However, the situation did improve during the first half of 2026 with equity increasing by around £400m.

What does this tell us?

Before rushing to judgment, I think it’s important to note that the group’s shares have yielded more than the FTSE 100 for nearly 20 years. And it’s currently undergoing a share buyback programme, which I believe would be cut in preference to reducing its dividend. In the long run, the sustainability of its payout will depend on whether it can grow its earnings.

Positively, the group has a huge pipeline of new pension funds that it’s looking to take over and manage. Also, with the State Pension unlikely to provide a comfortable level of retirement, interest in investing and personal pensions is rising. And its asset management business is performing strongly.

However, the group’s operating in a highly competitive market, which has resulted in a reduction in the margin earned on its pension risk transfer business. In addition, its solvency ratio’s falling as the group eats into its capital.

Personally, I don’t see any immediate threat to its dividend, which is why I think it remains an income stock to consider. The group performed strongly during the first six months of 2026 and has increased its net worth. Even so, I believe it’s important to keep an eye on Legal & General’s balance sheet going forward.

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James Beard owns shares in Legal & General plc.