I’ve bought one FTSE 100 income stock after another in recent months, with the aim of generating a high and rising passive income for my retirement.
One of my favourites is insurer and asset manager Legal & General Group (LSE: LGEN) which I’ve bought on three occasions since the summer. I invested my first £1k on 28 April, which bought me 225 shares at 234p each. At the time they were yielding around 7.75%.
I picked up another 451 shares on 6 July when the share price dipped to 219p, then invested £2k buying 903 more on 23 August. On 28 September I received my first dividend of £100.09, which I reinvested to buy another 45 shares.
This is a top FTSE dividend share
I now own a grand total of 1,824 L&G shares at a book cost of £4,097. So far, they’re up a solid 12.42% to £4,606, giving me a £509 paper gain. It’s not riches but these are early days. I’m hoping to watch my Legal & General shares steadily compound for years or, ideally, decades.
The stock may have to raise its game, though. Over five years, the L&G share price has grown just 3.89%. Over 12 months, it’s up just 3.2%.
Recent years have been tough for the stock, but it may get a lift as inflation and interest rates start falling. A stock market recovery should boost the group’s fund arm Legal & General Investment Management, one of Europe’s largest with $1.5trn of assets under management.
At the same time, falling interest rates could hit resurgent demand for annuities, so it won’t be all good news.
L&G is strong in the bulk annuity market, recently completing a £4.8bn Boots pension scheme buy-in, its largest ever. That lifted 2023’s pension risk transfer business to a record £13.4bn.
The dividend looks relatively secure with L&G on track to generate £8bn to £9bn of capital a year. The forecast yield is 8.09% in 2023 and 8.5% in 2024.
Balancing my risk
My stake should generate dividends of around £375 in 2024, with any share price growth on top. As ever, neither is guaranteed.
Legal & General shares still look cheap today, trading at 6.56 times earnings. That offers downside protection and I’d buy more like a shot, if I had the cash.
I don’t expect to retire for another 15 years, and I’ll keep reinvesting all my dividends until then. If the yield holds at around 8% and the share grows a modest 3% a year, I’ll enjoy a total average return of 11% a year on my £4,605.50.
That would boost it to £22,035 when I start drawing my dividends as a second income around 2039. If the yield is still 8% at that point, it would give me income of £1,763 a year, or £147 a month. Not bad from an initial investment of £4,000.
Obviously, I’m counting chickens here. L&G’s dividend may slide over time. The share price could fall or the group could even go bust. Net debt looks a little high at more than £6bn. That’s why I’m building a portfolio of around 15 FTSE 100 shocks, to spread the risk. But L&G is a firm favourite.
