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He FTSE 100 The index is a true goldmine when it comes to finding dividend stocks. And there's one high-yield stock in particular that I would feel comfortable buying today for the passive income it generates.
Going cheap
Financial services provider Legal and general (LSE: LGEN) could prove to be an odd choice. I would go so far as to say that the whole of last year was a failure for the majority of UK listed banks, wealth managers and insurers. It is no surprise that high inflation and soaring interest rates conspire to reduce the ability of ordinary people to save for their future.
On a positive note, this has made L&G shares look cheap. This is both relative to its peers and the stock market as a whole. Based on analyst projections, I can buy this stock for a little less than 10 times projected earnings.
This becomes even more tempting when you consider its delicious dividends.
Monster performance
L&G shares have fallen to a monstrous 8.5% return in 2024. Only a handful of UK top tier companies offer more and the FTSE 100 index itself returns “just” 3.8%.
It's also worth mentioning that L&G has a fantastic track record when it comes to increasing its payments almost every year.
If I were to invest £14,125 today – which would give me 5,673 shares – I would generate £1,200 a year or £100 a month in passive income.
Now, this is just an example; I understand that is a huge amount of money to spend. You would still receive a good amount of passive income with a lower participation.
But the key point is that I would potentially get a lot more bang for my buck by investing here than in a standard market-tracking fund. This assumes that he was happy to take more risks in the process.
Speaking of which…
But it's sure?
As expected with any stock, there are potential downsides to owning a portion of L&G. For me, the biggest concern is that the 2023 payment is likely to barely be covered by profits. This implies that there is a possibility of a future cut unless things improve.
Still, analysts are quite optimistic that the passive income stream will not be affected. The consensus is that L&G's dividend coverage will increase this year based on earnings recovery.
Bad performance
Another thing worth noting is that the stock hasn't generated capital gains in a while. If I had invested at the beginning of 2018, my share would be worth about the same today (ignoring the impact of dividends).
This could be a bitter pill to swallow when one has other FTSE 100 stocks that have generated stellar earnings over the same period while also paying dividends (albeit smaller ones).
I would buy for the passive income.
On the other hand, I am confident that L&G will get better returns from now on. The aging population should act as a major driver of growth in the coming decades. On the other hand, it's worth noting that this company has easily outperformed the FTSE 100 over the very, very long term.
However, I would buy the shares today if my primary The goal was to generate passive income, perhaps to supplement a pension.
Any benefits on top of this would be a plus.
