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Based on a current (5 January) share price of 262.4p, and dividends paid over the past 12 months of 21.48p, Legal & Generalâs (LSE:LGEN) stock’s yielding an amazing 8.2%. At the moment, itâs higher than all others on the index of the UK’s 100 largest listed companies.
However, such an impressive yield could be a sign that investors have their doubts that the payout will be maintained. In return for continuing to hold the financial services groupâs shares, they are demanding a higher reward.
As the table below shows, the stockâs offered an above-average dividend for the past decade, but a struggling share price has pushed its yield higher over the past four years or so.
| Financial year | Dividend (pence) | Share price (pence) | Yield (%) |
|---|---|---|---|
| 31.12.15 | 13.40 | 267.80 | 5.0 |
| 31.12.16 | 14.35 | 247.60 | 5.8 |
| 31.12.17 | 15.35 | 273.30 | 5.6 |
| 31.12.18 | 16.42 | 231.00 | 7.1 |
| 31.12.19 | 17.57 | 303.00 | 5.8 |
| 31.12.20 | 17.57 | 266.20 | 6.6 |
| 31.12.21 | 18.45 | 297.50 | 6.2 |
| 31.12.22 | 19.37 | 249.50 | 7.8 |
| 31.12.23 | 20.34 | 251.10 | 8.1 |
| 31.12.24 | 21.36 | 229.80 | 9.3 |
Further rises
The groupâs directors have stated that itâs their intention to increase the payout by 2% a year from 2025-27. Not surprisingly, analysts are reflecting this in their forecasts. If their estimates prove to be correct, the forward (2027) yield is 8.7%, assuming the share price remains unchanged.
| Financial year | Forecast dividend (pence) | Implied yield (%) |
|---|---|---|
| 31.12.25 | 21.79 | 8.3 |
| 31.12.26 | 22.23 | 8.5 |
| 31.12.27 | 22.74 | 8.7 |
But if the companyâs earnings were to fall, itâs likely that its dividend would be cut. However, in my opinion, Legal & General looks to be well positioned to grow its profit over the coming years.
Thatâs because it has a strong balance sheet. One calculation of strength is the Solvency II ratio. This is a European Union standard measure of financial strength in the insurance industry. At 30 June 2025, Legal & Generalâs was 217%. In 2024, the average for UK companies in the sector was 194%.
A poor share price performance
Principally for its generous yield, I think the stockâs one to consider. No other on the FTSE 100 offers a return above 8%. However, there are challenges, which could weigh on the groupâs share price. And these same risks could explain its underwhelming share price performance in recent years.
The group operates in an increasingly competitive industry. Smaller new entrants have a lower cost base, which means they can provide services cheaper than their larger rivals.
Also, the groupâs balance sheet contains over £500bn of equities, bonds, and investment property. As the group itself acknowledges: âInvestment market performance and conditions in the broader economy may adversely impact earnings, profitability or surplus capital.â
But I remain optimistic. The group has a huge pipeline of pension schemes that itâs looking to acquire and manage.
And during the six months ended 30 June 2025, core earnings per share increased by 9% compared to a year earlier. The companyâs directors also reconfirmed their commitment to deliver £5bn of dividends and share buybacks up until 2027.
At the end of 2019 — when the groupâs shares were changing hands for more than £3 — it was valued at just over £18bn. Today, itâs market cap is £14.9bn.
Since then, changes to accounting standards have made it difficult to compare like with like. But the value of the groupâs investments is roughly the same as it was and, at 31 December 2019, its Solvency II ratio was 177%.
In other words, I reckon it’s in better shape now than it was six years ago. This makes it more likely to continue to grow its dividend and could be an indication that its shares are undervalued. On this basis, I reckon Legal & General’s shares are worth considering.
The post With an 8.7% forecast dividend yield, is this top FTSE 100 passive income stock an unmissable bargain? appeared first on The Motley Fool UK.
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James Beard has positions in Legal & General Group Plc. The Motley Fool UK has recommended London Stock Exchange Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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