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The yields on UK income stocks have fallen sharply following 2025’s stock market rally. The FTSE 100 index’s forward dividend yield is now 2.9%, below the long-term average of 3% to 4%. Does this make now a bad time to invest in dividend shares?
My frank assessment is that it doesn’t, though it does mean share pickers must be more selective than they were a year ago. The FTSE 100 and FTSE 250 indexes are still packed with excellent high-yield dividend stocks for 2026 and beyond.
Want to see one of my favourite passive income shares today? Read on.
Great dividend record
The 8.3% dividend yield on Legal & General (LSE:LGEN) shares is more than double the FTSE 100 average. This is no anomaly — as the below chart shows, the company has a long record of offering blue-chip-busting dividend yields.
Legal & General’s robust balance sheet has made it one of the UK’s best income stocks. Dividends have risen every year except one since 2011. With a Solvency II capital of 217% — more than double regulatory requirements — it’s in great shape to keep this record going even if earnings come under pressure.
Cash machine
The business can choose to invest its enormous cash reserves for growth instead. But ploughing money in its operations offers limited benefit given the mature industry in which it operates. As a result, the Footsie firm has prioritised returning capital to shareholders through dividends and stock repurchases.
City analysts are expecting Legal & General to make around £250m worth of share buybacks in 2026 and 2027. That follows the half a billion pounds worth of shares it repurchased last year. They’re also expecting the company to raise annual dividends 2% each year over the period, resulting in this year’s 8.3% yield and an 8.5% yield for 2027.
So what are the risks of investing Legal & General shares? While it’s looking good in terms of dividends, total returns over the next couple of years could still disappoint if its share price drops. With market competition growing and the economy struggling, it’s a possible scenario if these threats have a tangible impact on profits.
Big dividends at low prices
On balance, though, I think it’s a top stock to consider right now. Excellent brand recognition should help it navigate threats from rival companies. And over the long term, I expect earnings and dividends to rise strongly as demographic changes — combined with rising interest in financial planning — drive the broader financial services industry.
I don’t think Legal & General’s excellent all-round investment case is reflected at today’s share price. At 265.7p, the business trades on a forward price-to-earnings (P/E) ratio of 10.8 times.
Meanwhile, its P/E-to- growth (PEG) multiple is 0.3, well below the bargain-basement yardstick of 1.
So there you have it. For investors seeking great-value income stocks, I think Legal & General shares are worth serious consideration.
