9.8% yield! Here’s the dividend forecast for Legal & General shares through to 2026

The dividend yield on Legal & General shares almost hits 10% over the next few years. Could it be one of the FTSE 100’s greatest income plays?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Legal & General’s (LSE:LGEN) proven to be one of the FTSE 100‘s greatest dividend stocks to buy in recent times.

As the chart shows, it’s steadily grown annual payouts since the 2008/2009 financial crisis. The only exception came in 2020. Back then, the company froze dividends in response to the global pandemic.

Legal & General's dividend history.
Created with TradingView

Its resilience is thanks in part to its diversified business model. Its presence across the life insurance, pension, and asset management sectors helps protect its earnings and supports steady cash flow that are essential for dividends. It’s also thanks to the firm’s strong financial foundations.

Pleasingly, the company’s vowed to raise dividends to 2027, at least. Based on their plans, shareholder payouts will look like this:

YearDividend per shareDividend growthDividend yield
202421.36p5%9.5%
202521.79p2%9.6%
202622.23p2%9.8%

As you can see, dividend yields move to within a whisker of double digits, which is a tantalising prospect. However, before buying any dividend share, I need to think about how realistic these forecasts are.

I also need to consider whether further share price weakness could occur that offsets more large dividends. Here’s my take on the financial services giant.

Balance sheet strength

At first glance, Legal & General doesn’t appear to be the safest dividend share out there. This is based on the simple-to-calculate dividend coverage ratio.

Any reading of 2 and above provides a wide margin of safety. Unfortunately, cover over at this Footsie share ranges at 1 times to 1.2 times through to 2026.

On paper, this leaves almost no room for error if earnings disappoint. However, Legal & General still has a rock-solid balance sheet it can call upon to help it pay large dividends.

As of June, the company’s Solvency II capital ratio was an impressive 223%. It has so much cash that the business has also announced a £200m share buyback programme, and vowed similar repurchases in the coming years.

Encouragingly, weak dividend cover is a long-running feature of Legal & General shares. But this hasn’t proved a hurdle to the company reliably growing dividends for more than a decade, as I described above.

Strong fundamentals

Legal & General's share price
Created with TradingView

As I also mentioned, I’m also looking for stocks that can maintain or ideally grow their share price. You’ll see from the chart above that Legal & General’s share price has fallen sharply of late.

This chiefly reflects investor unhappiness over the company’s plans to grow dividends at a slower rate between 2025 and 2027. Investors are also concerned over potential execution risks as it revamps its asset management division.

But I strongly believe Legal & General’s shares will rebound strongly. This will be driven by soaring demand for its products due to demographic changes across its markets.

In particular, I’m encouraged by the firm’s ambitious goals for the fast-growing pension risk transfer (PRT) market. It plans to write between £50bn and £65bn worth of business in the UK alone by 2028.

Legal & General will have to overcome tough competition to realise its growth potential. But its status as a market leader across multiple product segments shows it knows how to thrive in a tough climate. I think this is one of the Footsie’s attractive dividend shares to consider right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has positions in Legal & General Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »