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One of the attractions for me of owning shares in legal and general (LSE:LGEN) is the earning potential. L&G’s dividends have been generous in the past, and I think that could be the case in the future as well.
In fact, I estimate that if I invest £1,000 in stocks today, I could end up earning £940 in the next decade alone.
dividend outlook
That estimate is based on the current size of the dividend and the growth rate. In the middle stage of this year, the company increased its payment by 5% compared to the previous year. That’s in line with its stated dividend policy of aiming for an annual increase in low to mid-single digit percentage points.
If the final payment increases at a similar rate, the payment for the full year should be around 19.4 pence per share.
If Legal & General’s dividends continue to rise by 5% per year, within a decade they would be around 30p per share each year.
That may not seem like a huge jump in a 10-year period. But it would mean, if I buy a single share today for around £2.59, I expect to earn around £2.44 in dividends over the next decade.
So if I invest £1000 in these FTSE 100 shares, I would be on track to get close to that amount (£940) in the next 10 years, without selling a single share.
Payment risks
However, legal and general dividends are not guaranteed. No company is. The company has failed to increase its annual payment just once in the past decade, which is when the annual dividend was frozen for one year during the pandemic. Going further back, there was another cut during the financial crisis.
As an insurer, Legal & General could see profits drop if claims spike, due to an event like unusual bad weather. In fact, that led to the rival Direct line to cancel your payment last month.
But I think Legal & General has substantial business advantages that could help keep your business running strong. It operates in a market with resilient customer demand. A well-known brand name helps keep customer acquisition and retention costs lower than startup rivals. And long experience in the insurance business should mean that the company can price risks profitably overall.
That combination of features helps explain why the company made more than £2bn in after-tax profit last year.
my movement
I see this FTSE 100 company as a strong, well-managed company with great long-term potential. It’s been around since the 1830s and I think it probably has a long future ahead of it as well.
If I had an extra £1,000 to invest today, I would buy the shares for my portfolio.
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