If I was building a retirement portfolio today, I’d certainly consider buying Legal & General (LSE: LGEN) shares. This is a company with a good track record when it comes to rewarding investors with dividends. And right now it has a very attractive yield.
Here, I’m going to show how an investment in the financial services company could potentially deliver a ton of income in the years ahead. Let’s crunch the numbers.
A ton of passive income
To work out how much income a stock can potentially generate, there are two things we need to know. First, we need the company’s share price. Then we need its dividend forecast (the amount the company is projected to pay out per share on an annual basis).
Zooming in on Legal & General, it currently has a share price of 220p. Meanwhile, its dividend forecast for 2024 is 21.4p per share.
With these numbers, I calculate that if I invested £5,000 in the company today, I’d get 2,272 shares (ignoring trading commissions) and be in line for annual dividends of around £485.
Similarly, if I invested £10,000 in the company, I’d get 4,545 shares and be in line to receive income of around £970 a year.
Now £970 in income from a £10k investment is a very good result, to my mind. Especially if the investment was made within a Stocks and Shares ISA. Because then the income would be completely tax-free!
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Risk versus reward
So what are the risks here? Well, there are a few to be aware of. For a start, there’s no guarantee that Legal & General will pay out 21.4p per share in dividends for 2024.
While the company has continually raised its payout over the last decade, its profits could take a hit and then decide to pay out a smaller dividend. Rising interest rates, claims inflation, and new regulatory changes are other factors that could send profits lower.
Or management could decide the company’s yield is too high and lower the payout. It’s worth noting there’s a new CEO coming in next year. He could have new ideas in relation to capital distributions.
Ultimately, dividend forecasts are not always accurate.
Another risk is share price volatility. Legal & General has historically been quite a volatile stock. This is illustrated by the fact that it has a ‘beta’ of 1.7, which means it’s around 1.7 times as volatile as the UK market as a whole.
So if the stock market took a hit, investors in Legal & General could face share price losses.
Potential for attractive returns
IBut ’m optimistic that the company can deliver solid total returns (capital gains and dividends) over the long term. If I was building a retirement portfolio right now, it would be one of my top picks.
