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One of the attractions for me is to have a stake in it Legal & General (LSE: LGEN) is the income potential. In the past, L&G’s dividend has been generous – and I think that will be the case in the future as well.
In fact, I estimate that if I put £1,000 in stocks today, I could earn £940 in the next decade.
Dividend outlook
These estimates are based on the current dividend size and growth rate. At this year’s interim stage, the company increased its payout by 5% compared to the previous year. This is in line with our established dividend policy of targeting annual increases in the single to mid-digit percentage points.
If the final payout rises by the same proportion, the full-year payout should come in at around 19.4p per share.
If Legal & General’s dividend continues to be raised by 5% per year, a decade from now it will be around 30p per share per year.
This may not seem like a huge leap in 10 years. But that means, buying one share today at £2.59, you can expect a profit of around £2.44 over the coming decade.
So if I put £1,000 into these FTSE 100 shares, I’ll be on track to get close to that amount (£940) back in the next 10 years – without selling a single share.
risk pay
However, Legal & General dividends are not guaranteed. There is no company. The company has failed to increase its annual payout just once in the past decade, when its annual dividend was frozen for a year during the pandemic. Back then, there were other cuts during the financial crisis.
As an insurance company, Legal & General could see profits drop if claims balloon, due to events like unusual weather. Indeed, it leads the competition Direct Line to cancel the last month’s payment.
But I feel that Legal & General has commercial advantages that can help their business to thrive. It operates in a market with resilient customer demand. A well-known brand helps keep customer acquisition and retention costs lower than competing startups. And long experience in the insurance business means that the company can take risks with overall profit.
The combination of these features helps explain why last year, the company generated profits of more than £2bn after tax.
My movement
I see this FTSE 100 company as a solid and smooth business with strong long-term potential. It has been around since the 1830s and I think it has a very long future.
If I had a spare £1,000 to invest today, I would buy shares for my portfolio.
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