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Right now, one FTSE 100 dividend share overshadows all the rest. Its name? Legal & General Group (LSE: LGEN). The reason? Its mighty 8.1% yield is the biggest on the entire blue-chip index.
That’s a whopping rate of income. Roughly double what savers can bag on a best buy savings account. Better still, while saving rates are likely to fall further this year as the Bank of England cuts base rates, that yield should rise by around 2%. And continue to rise by that amount every year.
Legal & General shares struggle
No dividend is guaranteed. When yields get this high, they can be vulnerable, as companies need to keep generating enough cash to maintain their largesse. Legal & General’s earnings have been choppy lately but seem to have stabilised, with management forecasting solid growth between 6% to 9% across the 2025 financial year.
Adding to my confidence, the group maintains a very strong Solvency II ratio, which edged up from 224% in 2023 to an even more comforting 232% in full-year 2024.
It’s since slipped slightly to 217%, but that reflects recent dividend payments to investors, along with a share buyback, and should be temporary. Overall, I think it looks solid although if we get a recession or a major stock market crash, nothing can be ruled out.
Now there’s one big problem with Legal & General shares. Although, I think it justifies my claim that this is potentially a once-in-a-decade opportunity.
The shares have climbed a solid 14% in the last 12 months, but that trails the average FTSE 100 growth of around 20%. They’ve done even worse over five years, down a very disappointing 5%. The share has struggled to build momentum, in marked contrast to key sector rival Aviva.
The Legal & General share price now trades at similar levels to 2016. There have been plenty of ups and downs in that time, but at today’s price of 265p, the shares are only slightly about the 250p they traded at almost a decade ago. This arguably gives investors an opportunity to get in at a decent valuation.
Value stock or trap?
Personally, I’m wary of buying shares after a strong run, as it means arriving to the party late. That certainly isn’t a problem here. It’s also a key reason why the yield is so stunningly high.
Now there’s no guarantee that Legal & General shares will suddenly take off. That sideways motion may continue. The UK economy is struggling and the global economy is choppy, while geopolitical issues intensify. Tariffs aren’t helping either.
However, Legal & General is building a new income stream in pension risk transfers, where it takes over the responsibility of running company pension schemes. It’s a competitive area, but it should help revenues grow.
I wish I could say its shares are really cheap, but with a price-to-earnings ratio of 15.5, we’re not looking at a once-in-a-decade valuation, sadly. However, I still think that mighty yield is a rare opportunity, and Legal & General is well worth considering for income-focused investors willing to bide their time, and wait for the growth to come. They’ll get a considerable income stream while they wait.
