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It’s no secret that Legal & General (LSE: LGEN) shares pay big dividends. For years now, this Footsie stock’s offered a bumper yield.
But how much dividend income are investors looking at with a £5,000 investment in the shares exactly? Let’s crunch the numbers.
A dividend income machine
Today, Legal & General shares are trading for 236p. So ignoring trading commissions and Stamp Duty, an investor could buy 2,118 shares with £5,000.
Now, for the 2025 financial year, City analysts expect Legal & General to pay out 21.8p per share in dividends (a yield of 9.2%). However, the problem is that anyone buying today wouldn’t receive that amount of income because the company paid its first-half dividend in September (6.1p per share).
So it probably makes sense to focus on next year’s projected dividend when calculating the income potential here. This is expected to be 22.2p per share.
Apply that to 2,118 shares and we get roughly £470. That’s how much income the stock could potentially provide for the 2026 financial year.
Note that this wouldn’t all be paid in 2026. Normally, Legal & General pays its second dividend in early June of the following year. Still, it’s a decent amount of income. £470 from a £5,000 investment is considerably more than can be obtained from a savings account.
What’s the catch?
Of course, there are no free lunches in the financial world. So what are the risks here? Well, for a start, unlike a savings account, dividends are never guaranteed.
While Legal & General’s increased its payout every year for around 15 years, it could suddenly decide to change its capital allocation policy and pay less in dividends.
Given that the company’s earnings are only just covering dividend payments right now, I wouldn’t be surprised if this scenario played out. If it did, it could result in disappointing returns for investors.
Another risk is share price losses. This stock can be volatile at times, especially when there’s turbulence in the financial markets.
Insurance companies like Legal & General have a lot of different financial instruments on their books including stocks, bonds, and derivatives. And when markets get a bit wild, their share prices often fall due to uncertainty over the values of these assets.
It’s worth noting here that Legal & General shares have a ‘beta’ of 1.6. This means that they are roughly 1.6 times more volatile than the broader UK market.
That beta reading’s a risk needed to be accepted in picking up the high yield here. While dividends are higher than the market average, so is share price volatility.
Worth the risk?
So, are the shares worth considering for income? I think so, assuming a long-term horizon (and can ride out share price volatility). With exposure to investment management, retirement solutions, and insurance, the company has solid long-term prospects.
That said, Legal & General’s not the first high-yield stock I’d go for today. Looking across the UK market, I see a few other dividend stocks I like more.
