Image source: Getty Images
Legal and General Group(LSE:LGEN) has been one of the FTSE 100The most popular dividend stocks of recent years.
Not only has the financial services giant increased annual payouts almost every year since the 2008/2009 financial crisis (as shown below), but its dividend yields have also surpassed the Footsie average over the period.
Dividends are never, ever guaranteed. But there's good news for owners of Legal & General stock like me. City analysts expect the company to pay a large and growing dividend until at least 2026.
With an investment of £10,000 today, how much passive income could you generate?
9.8% dividend yield
As an asset manager, life insurer and retirement product provider, earnings here can disappoint when consumers cut back and interest rates rise. In fact, these factors contributed to double-digit earnings declines over the past two years.
However, the company's rich balance sheet means it has been able to continue increasing dividends. In 2023, the annual dividend on Legal & General shares increased by 5% to 20.34 pence per share.
Encouragingly, City analysts think cash rewards will continue to increase until at least 2026, as noted in the table below.
| Year | Dividend per share | Dividend growth | Dividend yield |
|---|---|---|---|
| 2024 | 21.32p | 5% | 9.3% |
| 2025 | 21.83p | 2% | 9.5% |
| 2026 | 22.36p | 2% | 9.8% |
These forecasts are in line with Legal & General's plans. And as you can see, dividend yields are above the FTSE 100 historical average of 3-4%.
I expect dividends to continue to increase during this period as well. But even if dividends don't grow beyond 2026, a global investment of £10,000 could still provide me with a monthly passive income of over £600.
£623 per month
If brokers' estimates are accurate, it would earn £980 in dividend income in 2026 and £9,800 in a decade. Over 30 years, you would enjoy a passive income of £29,400.
But it could earn even more if it reinvested these payments to shareholders. Thanks to the mathematical miracle of compounding, after 10 years it would have generated £16,539 in dividends.
And after 30 years, you would have earned a total passive income of £176,913, more than six times the £29,400 you would have earned without reinvesting.
After adding my initial investment of £10,000, my portfolio would be worth £186,913 (assuming no growth in the share price). If you then withdraw 4% each year, you would have an annual passive income of £7,477 and a monthly passive income of £623.
One of the best options?
The Legal & General share price has struggled to gain traction since late 2022, as shown above. This reflects the impact of higher interest rates, which remain a threat going forward, on its business performance.
However, over the next 30 years, I expect the company to generate healthy share price gains. and abundant dividend income, driven by demographic changes. And then you could have an even bigger passive income to live on than the £623 mentioned above.
As long as Legal & General's balance sheet remains strong, it can continue to pay large dividends and invest for growth. Things are certainly looking good at the moment, with the company targeting operating surplus cash generation worth £5bn to £6bn between 2025 and 2027.
I think the legal and general actions deserve a serious look from dividend investors.
