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For investors trying to build income in the stock market, Legal & General (LSE: LGEN) offers one of the richest dividend yields in FTSE 100 index.
The stock is currently paying 8%, on top of the big dividend buys in recent years. I wanted to investigate whether this Footsie financial powerhouse is worth considering for cash-strapped investors in 2026.
What happened to Legal & General’s share price?
The shares are trading at 275p as I write on 5 February, giving the group a market capitalization of £15.6bn. Over the past 12 months the stock is up 16%, helped by strong results and investor demand for income as interest rates have fallen.
Successful managers have played their part in recent gains. Core operating profit for 2024 came in at around £1.6bn, an annual increase of 6%.
The company’s Solvency II capital generation was £1.8bn with a solvency performance ratio of 232%, indicating a healthy financial position. That compares favorably with such peers Aviva with a Solvency II core benefit of £1.5bn and a solvency coverage ratio of 203%.
For people looking for money, the issue of dividend is important. The company’s full-year 2024 dividend was 21.36p per share, up 5% year-on-year.
The Legal and General Board has given guidance for profit growth of 2% per annum from 2025 onwards. That is in line with a £500m share buyback plan for 2025 and an aim to return more than £5bn to shareholders over three years through dividends and buybacks.
Those additional returns were supported by disposals of non-core businesses, including its Cala house building arm and US defense unit.
Measurement
Looking back at the numbers, Legal & General looks overpriced, with a trailing price-to-earnings (P/E) ratio of nearly 60. That’s significantly higher than Aviva’s leading 29.9 P/E, for example.
Forward estimates paint a different picture. Shares trade at 11 times earnings, a discount to Footsie’s estimate of about 13.
Revenue metrics are where stocks shine. The company’s 8% yield is higher than both Footsie’s average of 3.5% and peers such as Aviva (5.6%).
The dividend cover is also high, sitting at around 1.8 times. With the board determined to return cash to shareholders, the stock looks interesting as a potentially profitable play.
My decision
For investors looking for stocks that can support a long-term income strategy, the company looks to offer a rare combination of high yield, clear guidance on future payouts, and reasonable stock buybacks.
Of course, there are risks involved. The company operates in a highly regulated industry, and its profits are highly exposed to interest rates and changes in credit markets.
Competition in the pension risk transfer space is intensifying as global asset managers and insurers are chasing a host of corporate schemes, which is impacting price volatility.
While diversification is important, I think the company’s 8% yield and strong market conditions make it worth considering for yield-hungry investors.
