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I FTSE 100 is full of dividend stocks for investors to choose from. The overall index only offers a yield of 3.2% today. But the story is very different from some of its elements.
Take it Legal & General (LSE:LGEN) as a good example. With an impressively high payout of 9.2%, it’s one of the most popular annuities you can buy right now. That being said AJ BellBuy and sell the latest data.
Imagine, if an investor concentrated his entire £100,000 portfolio in this one stock for now.
Obviously, an investor who puts all his eggs in one basket is a very risky move. But if Legal & General continues to reward shareholders with such an impressive payout, this level of concentration could generate huge passive income overnight. It would be around £9,220 if you do the numbers.
Income opportunity
Generally, if the dividend yield is this high, it means that the stock price has just fallen off a cliff. But in the case of Legal & General, that did not happen.
In fact, the share price is at its lowest in the last 12 months. But dividends have risen for five years in a row.
Even with management climbing profits and committing to a £1.2bn share buyback plan, shareholder payouts remain well covered by cash flow.
A growing pension risk transfer (PRT) market is allowing Legal & General to strengthen its earnings even in the face of wider UK macroeconomic challenges. The PRT market is currently on track to reach £50bn by 2026, up from £40bn by 2025. And Legal & General is already commanding £17bn of these incoming deals.
At the same time, its asset management arm has also recently reached an important inflection point. We have made every year new revenues that come into a good position, which paves the way for wider margins for the future.
On the surface, the cash flow seems to be growing steadily along with the profits… so what is the profit?
Where is the danger?
As of December 2025, Legal & General’s Solvency II stands at 210%. That’s just over double the rules needed to show a healthy lifestyle. But what may be worrying is that this is actually down from 232% in 2024.
This downward trend comes as a result of the strong expansion of management in the PRT market, which is consuming large amounts of money in the short term. By itself, that’s not a big problem. However, when combined with a falling solvency ratio at a time when private debt markets are also under pressure, analysts are getting nervous.
These fears are only compounded by the considerable weakness in the UK economy. After all, insurance and asset management products are ultimately cyclical, with demand often falling sharply during recessions.
What is the decision?
The high yield offered by the FTSE 100 share stocks is an indication of the uncertainty surrounding the underlying business.
Legal & General may emerge as unscathed, risk-taking investors who are rewarded with large amounts of income and capital gains. But sadly, the opposite is also true.
That’s why investors considering taking this opportunity should do so with a diversified portfolio. It should not go beyond the focus, in my opinion, no matter how tempting the harvest may be.
