The negative drumbeat in the stock market goes on. The FTSE 100 has fallen over 3% so far this week as investors worry about, well, seemingly everything related to the UK economy.
One silver lining to all this is that as share prices fall, dividend yields increase. So I’ve been looking to take advantage of market weakness and add more quality companies to my portfolio. And I think one stock yielding a very attractive 8% dividend fits the bill nicely.
Dependable dividends
Financial services giant Legal & General (LSE:LGEN) has been around for nearly 200 years. The company is a dividend aristocrat, which means it has paid and increased its annual dividend for a very long time.
If I’d invested £5,000 in Legal & General shares five years ago, that would have bought me about 1,930 shares. I’d be down on my investment today because the current 216p share price is roughly 16% lower than it was back then.
However, as the annual dividend has increased steadily over this time, those 1,930 shares would now be generating me around £355 in yearly passive income. If I’d reinvested the dividends into buying more shares each year, that income figure would be even higher.
The payouts below are from the last few years and they paint a nice picture. While the 2020 dividend increase was paused due to the Covid-19 pandemic, this year’s estimate is for 19.4p per share, according to data from Refinitiv.
| Year | Dividend (per share) |
| 2017 | 15.35p |
| 2018 | 16.42p |
| 2019 | 17.57p |
| 2020 | 17.57p |
| 2021 | 18.45p |
| 2022 | 19.4p (forecast) |
Growing from a solid base
The company reported strong financial performance for the first half of 2022, with profits after tax, earnings per share, and operating profit all up by 8% year on year. It successfully received 100% of cash flows from its direct investments and the balance sheet remains very strong.
Management has set out ambitious targets it wants to achieve by 2024. These include eventually generating between £8bn and £9bn in cash and capital, over half of which is intended to be paid out to shareholders. The company remains confident of achieving these goals.
Of course, management could decide to retain more profits to put towards its growth initiatives rather than increasing the dividends. But I doubt it. Legal & General prides itself on its dividend aristocrat status, regularly trumpeting its long-term dividend growth in its reports. I don’t see that changing.
Risk
Over two-thirds of Legal & General’s revenue comes from retirement services and asset management. If newer fintech companies were to start taking market share, then that could threaten the company’s growth.
Yet I just don’t see that happening. Many of Legal & General’s customers are large organisations and institutions, so I don’t worry about them switching to unproven starts-ups.
Speaking personally, I don’t want my retirement pot deposited with some fly-by-night trading app. I want my nest egg safely stored with a company that will still be around when I retire.
I expect Legal & General will outlive us all — and still be paying out dividends to shareholders!