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As a shareholder in FTSE 100 a financial services company Legal & General (LSE: LGEN), how much the company pays in dividends is important to me. Currently, it has what I consider a very attractive dividend yield of 9.2%. So I've been thinking about what might happen to Legal & General's dividend over the next few years.
What does the current system mean?
This is helped by the fact that this company has clearly set its goals. For its current fiscal year, the company foresees a 5% increase in dividends per share.
In the three years following that, the expectation is to grow by 2% per year in the dividend of the Legal & General share. In addition, a cash-back plan is being planned that can help increase earnings per share.
paid a dividend of 20.3 %. Based on a 5% increase, I expect this year's dividend to come in at around 21.2p.
Following that, I expect 2025 dividends of around 21.7p per share, followed by 22.1p in 2026 and 22.5p in 2027. If growth of 2% is maintained over the life of the current plan, that would mean 2028 sees a dividend of 23p per share.
Given Legal & General's current share price, that means the five-year yield is around 10.2%. I certainly find that attractive.
Things could get even better
Not only that, but I actually think the forecast may understate the size of the potential budget five years from now (or the prospect of a special benefit down the road).
Legal & General has a strong brand, a large long-term customer base and a proven business model. I expect demand for retirement-related financial products to remain strong. The company has shown that it can generate a lot of excess revenue.
The board plans to reduce the annual dividend growth rate and invest some of the remaining cash in buybacks. Since announcing the plan in June, the stock has fallen 2%, indicating that the City doesn't find the recapitalization plan very exciting.
If the company continues to perform well and the board wants to try to increase the share price, I think they may choose to increase the dividend immediately, or declare a special dividend, sometime within the next five years.
Nothing is ever guaranteed in the stock market
On a more pessimistic note, we could see Legal & General's dividend cut as it did back in 2008. A financial crisis may lead investors to withdraw funds out of fear that makes it difficult for the company to continue paying dividends if it wants to increase its capital. money position.
In subsequent years, Legal & General returned its dividend per share to its level before that decision – and has far exceeded that.
So I recognize the risk, but I'm happy to continue holding this income share.
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