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Yesterday (11 March), Legal & General’s (LSE: LGEN) share price fell by a little over 6%. It ended the day at 242p, about 14% below its 2026 highs.
Is there an opportunity here with the share price down and the dividend yield up? Let’s discuss.
Unpacking its 2025 results
The driver of the share price fall yesterday was the insurer’s full-year results for 2025. These weren’t terrible, however, there were a few weak spots.
One issue was that core operating profit came in slightly below estimates. It amounted to £1.62bn, up 6% year on year, but lower than the consensus forecast of £1.65bn.
Another issue was that the full-year Solvency II coverage ratio came in at 210%, compared with the 219% expected and 232% a year earlier. This ratio is essentially a financial health check for an insurance company so it’s not ideal that it’s falling (it seems the company is now targeting a ratio of 160%–190% in the medium term).
As for the dividend, it was raised by 2% to 21.79p. An increase is a good thing for investors, however the issue here is that core operating earnings per share (EPS) for 2025 were only 20.93p.
In other words, earnings are no longer covering the dividend payments. This suggests that the dividend payout may not be sustainable.
It’s worth noting that the company announced a £1.2bn share buyback in the results. This could potentially help to boost earnings per share in the future.
An investment opportunity?
As for whether the shares are worth considering at current levels, I think they probably are if an investor is seeking income.
At today’s share price, they look quite cheap. Taking the earnings figure above, we have a trailing price-to-earnings (P/E) ratio of 11.6.
As for the dividend yield, it’s now about 9% on a trailing basis. That’s no doubt attractive.
Meanwhile, taking a long-term view, the company appears well placed to keep growing. With rising demand for long-term investments and retirement income, it’s positioned well.
But there are quite a few risks to be aware of with this stock. For a start, there’s the risk of a dividend cut at some stage.
With earnings not covering the payout, I wouldn’t bank on the yield staying high forever. Note that a dividend cut could hit the share price.
A stock market meltdown is another risk to consider. Given that the company generates a lot of its income from assets under management, a sharp downturn in the equity markets could compromise its earnings.
There’s also potentially some risk on the private markets side of the business (Legal & General has been beefing up its exposure here in recent years). Recently, there have been some signs of stress in the private credit space and we can’t rule out some problems here such as loan defaults or substantial investor redemptions.
Given the risks, position sizing is going to be important here. This isn’t a stock I’ll load up on for my portfolio.
