9.8% yield! Here is the forecast for Legal & General assignments until 2026
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Legal & General's (LSE:LGEN) has proven to be one of the FTSE 100The biggest stocks you can buy in recent times.
As the chart shows, there has been a slight increase in annual payments since the financial crisis of 2008/2009. The only exception came in 2020. At the time, the company suspended dividends due to the global pandemic.
Its strength is due to its diversified business model. Its presence across the life insurance, pension, and asset management sectors helps protect its interests and support the stable cash flow that is critical to profitability. And it is because of the strong financial fundamentals of the firm.
Thankfully, the company vowed to raise dividends in 2027, at least. Based on their plans, shareholder payouts will look like this:
| A year | Dividends per share | Share growth | Dividend yield |
|---|---|---|---|
| 2024 | 21.36p | 5% | 9.5% |
| 2025 | 21.79 p | 2% | 9.6% |
| 2026 | 22.23p | 2% | 9.8% |
As you can see, dividend yields are coming within a whisker of double digits, which is an amazing prospect. However, before buying any dividend share, I need to think about how true these predictions are.
I also need to look at whether it is possible for the share price weakness to reduce the huge gains. Here's what I have to say about the financial services giant.
Balance sheet strength
At first glance, Legal & General does not appear to be the safest dividend stock. This is based on a simple calculation of dividend coverage.
Any reading of 2 and above provides a wider margin of safety. Unfortunately, the coverage on this Footsie share ranges from 1 to 1.2 times until 2026.
On paper, this leaves almost no room for error if earnings disappoint. However, Legal & General still it has a strong balance sheet that can be expensive to help pay large dividends.
As of June, the company's Solvency II capital ratio was 223%. It has so much cash that the business has also announced a £200m share buyback plan, and has pledged to buy back the same over the coming years.
Encouragingly, weak dividend cover is a long-standing feature of Legal & General shares. But this has not proved an obstacle for a company that has been reliably growing profits for more than a decade, as I explained above.
Strong foundations
As I said again, I look for stocks that can maintain or increase their share price. You'll see in the chart above that Legal & General's share price has fallen significantly recently.
This mainly reflects investor dissatisfaction with the company's plans to increase dividends at a lower rate between 2025 and 2027. Investors are also concerned about potential risks as it restructures its asset management division.
But I strongly believe that Legal & General shares will rise significantly. This will be driven by increased demand for its products due to demographic changes across its markets.
In particular, I am encouraged by the firm's ambitions for the fast-growing pension risk transfer (PRT) market. It plans to write a business of between £50bn and £65bn in the UK alone by 2028.
Legal & General will have to overcome tough competition to realize its growth potential. But its status as a market leader across multiple product segments shows it can thrive in a tough climate. I think this is one of the more attractive Footsie dividend stocks to consider right now.
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