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Based on a current (5 January) share price of 262.4p, and dividends paid over the past 12 months of 21.48p, Legal & General’s (LSE:LGEN) stock’s yielding an amazing 8.2%. At the moment, it’s higher than all others on the index of the UK’s 100 largest listed companies.
However, such an impressive yield could be a sign that investors have their doubts that the payout will be maintained. In return for continuing to hold the financial services group’s shares, they are demanding a higher reward.
As the table below shows, the stock’s offered an above-average dividend for the past decade, but a struggling share price has pushed its yield higher over the past four years or so.
Financial yearDividend (pence)Share price (pence)Yield (%)31.12.1513.40267.805.031.12.1614.35247.605.831.12.1715.35273.305.631.12.1816.42231.007.131.12.1917.57303.005.831.12.2017.57266.206.631.12.2118.45297.506.231.12.2219.37249.507.831.12.2320.34251.108.131.12.2421.36229.809.3Source: London Stock Exchange Group/company reports
Further rises
The group’s directors have stated that it’s their intention to increase the payout by 2% a year from 2025-27. Not surprisingly, analysts are reflecting this in their forecasts. If their estimates prove to be correct, the forward (2027) yield is 8.7%, assuming the share price remains unchanged.
Financial yearForecast dividend (pence)Implied yield (%)31.12.2521.798.331.12.2622.238.531.12.2722.748.7Based on a share price at 5.1.26 of 262.40p
But if the company’s earnings were to fall, it’s likely that its dividend would be cut. However, in my opinion, Legal & General looks to be well positioned to grow its profit over the coming years.
That’s because it has a strong balance sheet. One calculation of strength is the Solvency II ratio. This is a European Union standard measure of financial strength in the insurance industry. At 30 June 2025, Legal & General’s was 217%. In 2024, the average for UK companies in the sector was 194%.
A poor share price performance
Principally for its generous yield, I think the stock’s one to consider. No other on the FTSE 100 offers a return above 8%. However, there are challenges, which could weigh on the group’s share price. And these same risks could explain its underwhelming share price performance in recent years.
The group operates in an increasingly competitive industry. Smaller new entrants have a lower cost base, which means they can provide services cheaper than their larger rivals.
Also, the group’s balance sheet contains over £500bn of equities, bonds, and investment property. As the group itself acknowledges: “Investment market performance and conditions in the broader economy may adversely impact earnings, profitability or surplus capital.”
But I remain optimistic. The group has a huge pipeline of pension schemes that it’s looking to acquire and manage.
And during the six months ended 30 June 2025, core earnings per share increased by 9% compared to a year earlier. The company’s directors also reconfirmed their commitment to deliver £5bn of dividends and share buybacks up until 2027.
At the end of 2019 — when the group’s shares were changing hands for more than £3 — it was valued at just over £18bn. Today, it’s market cap is £14.9bn.
Since then, changes to accounting standards have made it difficult to compare like with like. But the value of the group’s investments is roughly the same as it was and, at 31 December 2019, its Solvency II ratio was 177%.
In other words, I reckon it’s in better shape now than it was six years ago. This makes it more likely to continue to grow its dividend and could be an indication that its shares are undervalued. On this basis, I reckon Legal & General’s shares are worth considering.
