The London Stock Exchange is home to many ultra-high-yield dividend stocks. These all have the potential to generate consistent and growing passive income.
One of my favourite dividend shares is Legal & General (LSE: LGEN). This is a high-quality business specialising in timeless areas such as investment services, pensions, and insurance.
It forms a core part of my own income portfolio. And it’s one of a select few investments in which I reinvest the dividends I receive back into buying more of the stock.
In future, these additional shares should create additional cash dividends, which increases my holding, and on and on in a wealth-building virtuous circle. Eventually I intend to harvest the income from this long-term reinvestment strategy.
But what if I had £10,000 to invest in the stock right now? How much passive income could that net me? Let’s find out.
Solid record
Today, the Legal & General share price is 235p. That’s not much below where it was five years ago when it stood at 277p.
However, over that time, there have been a steady stream of rising dividends. And impressively, L&G even kept the income flowing to shareholders during the pandemic.
| Year | Dividend per share |
| 2023 (forecast) | 20.4p |
| 2022 | 19.4p |
| 2021 | 18.5p |
| 2020 | 17.6p |
| 2019 | 17.6p |
| 2018 | 16.4p |
| 2017 | 15.4p |
The stock carries a dividend yield of around 8.2% today. That’s more than double the FTSE 100 average of 3.7%. And it means I’d receive passive income of £820 from a £10,000 investment, based on last year’s dividend of 19.4p per share.
If the forecast dividend of 20.4p per share is met this year, I’d get £870. While this isn’t a given, the payout is expected to be reassuringly covered 1.7 times by earnings.
Solid results
In 2022, L&G’s operating profit rose 12% year on year to £2.5bn, while the dividend was raised 5%.
It boasted a record solvency ratio of 236% (up from 187%), signalling a very solid balance sheet. And it received 100% of cash flows due from its direct investments throughout the year.
L&G’s investment division has some £1.2trn of assets under management (AUM). Last year was a volatile one for markets, and AUM fell by £225bn, hitting profits in this segment. Long term though, I fully expect global markets to head much higher, boosting earnings.
Transition
One potential concern is that chief executive Sir Nigel Wilson is stepping down after more than a decade leading the company. It can sometimes be tricky finding a successor who can satisfy the demands of shareholders, particularly if he or she wants to shake things up.
However, I think continuity will be the name of the game here. The company is very much steady away and I don’t expect anything radical to change. So I’m pretty confident the transition will be seamless.
Finally, dividends are never guaranteed, of course, and can be cut or axed altogether, especially during financial meltdowns and unforeseen black swan events. And although past performance is not an indicator of future results, the company’s excellent track record gives me confidence this is one of the safer dividends I’m likely to find.
The payout is typically growing at around 5% a year. I’ll take that, and if I didn’t already own this excellent income stock, I wouldn’t hesitate to add it to my portfolio today.
