The FTSE100 is full of high-quality income stocks. However, when looking at dividend yields, one of them clearly outperforms all the others.
Today (June 26), an investor could buy 173 shares of the company Legal and general (LSE:LGEN) for £498.24. With a yield of 7.7%, this could unlock passive income of £38.46 over the next 12 months.
Admittedly, it won’t change anyone’s life, but with a little, regular investment and a little patience, it can. Let me explain.
What do the numbers look like?
While it may be tempting to spend £38.46 on something unnecessary, I think you would be better off reinvesting it by buying more shares of Legal & General. In this way, you can benefit from combining ingredients, once called “mankind’s greatest invention.”
To illustrate why it’s getting such good press, here’s how £500 will grow over different periods, assuming an annual rate of return of 7.7%:
- Five years – £725
- 10 years – £1,050
- 15 years senior – £1,521
- 20 years senior – 2,204 pounds
- 25 years senior – £3,194
- 30 years senior – £4,629
- 35 years senior – 6,707 pounds
- 40 years senior – £9,718
After four decades it would be worth almost £10,000 and generate dividends of £748 a year. As they say, diminutive acorns grow into mighty oak trees.
As impressive as this may be, once again it is not transformational. However, I think it would be possible if more than £500 was invested. For example, a lump sum of £10,000 will be worth £194,370 after 40 years. It’s probably like that.
Another strategy
Unfortunately, not everyone has such money. Instead, a diminutive monthly investment will probably be easier to achieve.
Indeed, supplementing your initial £500 with a monthly investment of £100 will boost (at 7.7%) as follows:
- 25 years senior – £87,169
- 30 years – £133,309
- 35 years senior – £200,168
- 40 years – £297,048
Using the highest of these numbers, a portfolio of shares paying 7.7% dividend would generate an incredible income of £22,873 per year. That’s an excellent return on doing nothing more than buying a few shares a year.
However, dividends cannot be guaranteed. If Legal & General’s profits suffer due to increased competition, or if its huge investment portfolio is seriously affected by a market downturn caused by the global economic slowdown, then the company’s payout is likely to be reduced.
None of these things can be ruled out.
My view
However, I remain positive about the prospects for the pension and savings group. Personally, I think there are plenty of reasons why it could retain its position as the highest-grossing company on the FTSE 100 for the foreseeable future.
In 2025, it reported 9% growth in basic earnings per share. Encouragingly, the group says it is on track to achieve 6-9% growth in 2026. It has also committed to increasing its dividend by 2%.
The group is actively targeting the £17 billion of pension funds it wants to manage. He is also benefiting from the renewed enthusiasm for annuities brought on by the higher interest rates we are experiencing.
Importantly, it maintains a powerful balance sheet, maintaining more than twice the level of reserves that the industry regulator says companies in this sector should have.
Overall, I think Legal & General is an excellent dividend stock that investors should consider.
Is it worth investing £5,000 in Legal & General Group Plc now?
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James Beard owns shares in Legal & General plc.
