Legal & General (LSE: LGEN) looks to be one of the most compelling dividend opportunities in FTSE for me right now.
It is already yielding a whopping 8.1%, and forecasts suggest it could rise to an eye-catching 8.9% by 2028. the stock still trades at a staggering 57% discount to its ‘fair value’.
So, how much can my extra £20,000 invested in this crackerjack stock make?
Strong dividend growth
The insurance and investment giant has increased its dividend every year since 2020. During that time, fees have risen from 17.57p to 18.45p, 19.37p, 20.34p, and most recently 21.36p.
Those offered annual dividend yields of 6.6%, 6.2%, 7.8%, 8.1%, and 9.3%. Based on the current share price of £2.63, the stock yields 8.1%.
Analysts expect the upward trend to continue, with forecasts of 22.2p this year, 22.7p next year, and 23.4p in 2028. This will produce a dividend yield of 8.5%, 8.7%, and 8.9%. In context, the average dividend yield in FTSE 100 – its domestic index – is 3.2%.
An amazing measurement gap too
On a discounted cash flow (DCF) basis, the shares trade at approximately 57% below their fair value. This is based on forecast income growth and my calculations, while other DCF calculations are more conservative.
This is an unusually wide gap for an FTSE 100 financial heavyweight with a long track record of profitability and reliable cash generation, in my experience.
Therefore, for long-term income seekers, this can also create outstanding opportunities for capital appreciation, as asset prices tend to move toward fair value over time.
To put numbers to it, my DCF calculations highlight a fair value of £6.16 per share.
Strong foundations in results
Legal & General’s latest results highlight why the market’s deep discount looks out of step with the underlying business.
Its full-year 2024 results, released on 12 March 2025, reported a 6% year-on-year increase in core operating profit to £1.62bn. Core earnings per share (EPS) also rose 6% to 20.23p.
The company generated £1.8bn of Solvency II capital and maintained a strong coverage ratio of 232%. This speaks to greater financial stability, as compared to the industry standard minimum of 100%. It also announced a £500m share buyback, bolstering management’s confidence in future cash flow.
Its subsequent results on 6 August H1 2025 showed a rise in operating profit again by 6% to £859m. Meanwhile, operating EPS jumped 9% to 10.94p.
A risk to future benefits is the high level of competition in both retirement solutions and asset management that could reduce its pennies.
However, analysts forecast annual earnings growth of 21.3% until the end of 2028.
How much can I make?
Another £20,000 invested at an average yield of 8.9% will produce £28,543 in dividends over 10 years. This assumes that the payments are reinvested in shares (‘dividend compounding’). That said, dividend yields are not guaranteed and may rise, fall or stay the same over time.
However, for the same average return of 8.9%, the total dividends received would rise to £265,968 after 30 years.
At that time, the total holding would be £285,968, bringing in £25,451 a year in dividend income!
Given this, and the stock’s deep discount to a fair value, backed by strong earnings growth, I intend to add to my holdings in the near future.
