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I bought Legal & General (LSE: LGEN) shares inside my SIPP in 2023 and, so far, they’ve been pretty underwhelming. The FTSE 100 asset manager and insurer’s stock did rise almost 10% last year, but it’s still trading at roughly the same level as a decade ago.
Granted, it’s been a bumpy 10 years for the global economy and geopolitics. But its big sector rival Aviva has nonetheless made hay. Its shares are up 20% in the past year and 86% over five. Yet instead of chasing Aviva, which I don’t own, I’m actually considering adding to my Legal & General holding instead. Why?
It comes down to one overwhelming attraction – the dividend income. Legal & General is currently the most bought stock on the entire FTSE 100 among retail investors, according to Winterflood. I can only assume that like me, many are dazzled by the dizzying dividend on offer. The trailing yield now stands at a bumper 8.22%, the highest on the blue-chip index.
Top FTSE 100 dividend payer
Dividends are never guaranteed, but I think there’s a decent chance this one will endure. Legal & General’s balance sheet looks robust, with a Solvency II coverage ratio of around 217%, in its 2025 half-year results published last August. This means it holds more than twice the capital required to survive severe stress scenarios, giving it plenty of scope to keep paying shareholders even if markets wobble.
That figure has dipped from 232%, but it’s still strong, underpinned by healthy first-half Solvency II capital generation of £729m, up 3% on the previous year.
Management intends to increase the dividend by 2% a year through to 2027. That’s a slowdown from 5% in 2024, but given the sheer size of the income on offer, it feels reasonable. Analysts expect the shares to yield around 8.44% in the 2025 financial year, rising to 8.61% in 2026.
And share buybacks too!
In total, the board plans to return more than £5bn to shareholders over three years through dividends and share buybacks. That’s a serious commitment, and it reflects confidence in both capital strength and future earnings.
As ever there are threats. A stock market crash would hurt, given Legal & General has £1.2trn under management. It operates in a fiercely competitive sector, where rivals are fighting for new opportunities. And unlike Aviva, where Amanda Blanc has streamlined operations and reignited investor enthusiasm, Legal & General hasn’t yet delivered a comparable strategic reboot. The income is hugely attractive, but at some point investors will want capital growth too.
Markets move in cycles. So do share prices. Aviva spent years in the doldrums before suddenly smashing it. I’m hoping Legal & General follows a similar path. If the shares do finally climb the yield will fall, and today’s stunning income opportunity could slide.
That’s why I see today as a rare window. An 8%+ yield on a FTSE 100 stalwart with a solid balance sheet doesn’t come around often. I’m planning to add while the income is still dizzyingly high, then sit tight, cross my fingers, and hope the shares do better over the next decade than the last one.
