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the price of Legal and general (LSE:LGEN) shares are now even lower than they were last November. After a great start to the year, it moved around the 250p level before deciding that anything above 220p is too ambitious.
It's okay, I'm not even angry.
Over the long term, my stocks continue to generate excellent returns through dividends. Now at 9.5%, Legal & General has the third-highest yield in the market. FTSE 100.
What's more, it has a solid track record of increasing payments. They have increased at an average rate of 13.3% annually over the past 15 years.
But let's not forget, past performance is no indication of future results! So will the dividend giant continue to deliver as it has in the past?
To answer that question, I'm taking a look at the stock's dividend outlook.
Profit and dividend forecast
First, I should note that dividend estimates have declined since June, when the company announced a major overhaul. This included the sale of its housebuilding business and the departure of its head of asset management. It also introduced a new shareholder strategy, including a £200m share buyback programme.
The share price fell 5% following the news and has struggled to recover since. However, the forecasts remain relatively positive for the future.
The yield has increased from 6% in 2019 to almost 10% this year, driven largely by the price drop. Analysts expect it to continue rising to exceed 10% next year and 10.29% in 2026.
| Financial year | Dividend per share | Dividend yield |
|---|---|---|
| 2024 | 21.3p | 9.8% |
| 2025 | 21.8p | 10.04% |
| 2026 | 22.3p | 10.29% |
But a growing yield isn't worth much if the stock price continues to fall.
Growth forecasts give some hope that this will not be the case. Sales are expected to increase 5.15% next year and another 5% in 2026. Net income is expected to follow suit, which is projected to increase 33% next year and 8.29% in 2026 .
Meanwhile, the annual dividend is expected to increase by less than half a cent each year. The final dividend for 2024 is set at 21.3p, and is 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 24 pence per share next year and 26 pence in 2026.
Analysts are moderately positive on the share price, with an average 12-month target of 262p, up 20.5% from the current price.
Considerations
There are some factors threatening Legal & General's performance, such as recent increases in National Insurance and the minimum wage. This is likely to impact earnings during the next round of results.
As things stand, profits don't quite cover the current dividend, so a further drop could become a problem. If EPS doesn't grow as expected, the company may have to cut the dividend. Both situations could threaten the stock price.
Overall, I think the current price is good and things are likely to get better from here. Of course, that's assuming current conditions will hold. There is a lot going on in the world right now, so any short-term predictions should be taken with a grain of salt.
But in the long term? I plan to maintain my Legal and General actions well into retirement.
