What is the budget forecast for Legal & General shares in 2025 and beyond?
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The price of Legal & General (LSE: LGEN) shares are now much lower than last November. After a good start to the year, it hovered around the 250p level before deciding that anything above 220p was too ambitious.
Okay, I’m not even mad.
Over time, my stocks continue to deliver excellent dividend returns. Now at 9.5%, Legal & General has the third highest profit margin FTSE 100.
In addition, it has a strong track record of increasing payouts. They have increased at an average rate of 13.3% per year over the past 15 years.
But lest we forget, past performance does not predict future results! So will the dividend giant continue to deliver as it has in the past?
To answer that question, I look at the stock market forecast.
Salary and dividend forecast
First, I should highlight that the share price has decreased since June, when the company announced a major overhaul. This included the sale of its real estate business and the departure of its chief asset manager. It also launched a new shareholder strategy, including a £200m share buyback scheme.
The share price fell 5% on the news and has since struggled to recover. However, the prognosis is still good looking ahead.
Yields rose from 6% in 2019 to around 10% this year, mainly driven by falling prices. Analysts expect it to continue rising to over 10% next year and 10.29% in 2026.
| Fiscal year | Dividends per share | Return yield |
|---|---|---|
| 2024 | 21.3p | 9.8% |
| 2025 | 21.8p | 10.04% |
| 2026 | 22.3 p | 10.29% |
But rising yields aren’t worth much if the share price keeps falling.
The growth forecast gives hope that it won’t. Sales are expected to increase by 5.15% next year and increase by 5% in 2026. Total revenue is expected to follow suit, forecast to rise 33% next year and 8.29% in 2026.
Meanwhile, the annual dividend is forecast to rise by less than half a cent per year. The final dividend for 2024 stands at 21.3p, expected to reach 21.8p in 2025 and 22.3p in 2026.
Most interestingly, earnings per share (EPS) are expected to outpace dividends, rising to 24p per share next year and 26p in 2026.
Analysts are moderately optimistic about the share price, with a 12-month target of 262p — up 20.5% from today’s price.
Consideration
There are several factors that threaten Legal & General’s performance, such as the recent increase in National Insurance and the minimum wage. This may cost the profit in the next round of earnings.
As it stands, the income does not include the current dividend so further declines could be problematic. If EPS does not grow as forecast, the company may have to cut dividends. Both of these situations can threaten the stock price.
Overall, I think the current price is a good value and things look to improve from here. Of course, that is on the assumption that current conditions will be maintained. Right now, there is a lot going on in the world, so any short-term predictions should be taken with a grain of salt.
But for a long time? I plan to hold my shares in Legal & General until retirement.
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