Legal & General shares: an incredible passive income opportunity?

Legal & General (LSE: LGEN) shares have taken a hit recently. Just a few weeks ago, they were trading above 260p. Today, however, it can be taken up to 230p.

For income investors, I think the fall in stock prices has given an incredible opportunity. Because right now, the stock is paying huge dividends.

Huge returns on offer

Legal & General has built a strong dividend track record over the last decade and in 2022, the company announced a total dividend of 19.4p per share.

These payments translated into high yields ahead of recent stock price weakness. However, after the stock price fell, the results were huge. At the current share price, the payout of 19.4p equates to a yield of around 8.4%. That is more than twice the average result FTSE 100 index.

But it gets better. Going forward, Legal & General is expected to continue to increase its annual payout (the company is aiming for 5% annual dividend growth over the next few years).

Currently, analysts expect the group to pay dividends of 20.4p per share for 2023 and 21.4p per share for 2024. Excluding these figures, the estimated payout equates to yields of 8.9% and 9.3%. This type of income is hard to ignore, in my opinion.

For those looking for income, there seems to be a real opportunity here.

The board’s goal for the future is to maintain a progressive dividend policy, reflecting the expected medium-term business growth, including the measurement of capital income and adjusted operating profit.

Law & General Results 2022

Risks to consider

Now, there are always risks to be aware of.

One is the potential loss of fixed income investments. Uncertainty here is the main reason why the company’s share price has fallen.

Ultimately, rising interest rates globally caused many long-dated bonds to be worth less than they were before. And this has dangerous implications for some financial institutions (such as Silicon Valley Bank). Any loss here could impact the company’s dividend and/or share price.

A new CEO comes in is another risk to consider. After 11 years at the helm, Sir Nigel Wilson will step down as future boss. The new head may decide to implement an alternative capital allocation policy. For example, they may decide that the company pays too many dividends and will reduce the payout. There is no guarantee that the company will continue to pay such large dividends.

Overall, however, I like the risk/reward skew here now. With the stock currently trading at a price-to-earnings ratio (P/E) of just seven and offering a dividend yield of 8.4%, I see an excellent investment opportunity.