Legal & General: A Strong Contender for Passive Income Investors

Investors seeking reliable sources of passive income may find opportunities in the stock market, particularly with companies like Legal & General (LSE:LGEN). Known for its robust dividend payments, this financial services group has remained resilient, even during economic downturns. Its dividend was last cut during the global financial crisis in 2009, maintained through the pandemic, and is projected to increase by 2% annually from 2025 to 2027. If these projections hold, the cash dividend per share will be nearly six times higher in 2027 compared to 2009.

As of November 28, Legal & General boasts an attractive yield of 8.7%. While no dividend can be guaranteed indefinitely, analysts believe that the current payout levels can be maintained for at least a few more years. This confidence stems from the company’s strong performance in the pension risk transfer (PRT) market. Historically, many pension funds were in deficit; however, after a period of rising interest rates and increased employer contributions, many are now in surplus. This surplus presents a prime opportunity for trustees to transfer management of these funds to reputable providers like Legal & General.

In just the past three months, the company has taken on the management of pension schemes for BP and Ford (UK), managing a combined total of £6.2 billion in assets. Looking ahead, the company anticipates that approximately £1 trillion of funds will be secured by insurers across the UK, US, and Canada over the next decade.

Market Competition and Performance

Despite its strengths, the competitive nature of the market poses challenges for Legal & General. Its share price has seen a slight decline of 4% since November 2020, while the FTSE 100 index has surged by 52% during the same period. Nonetheless, Legal & General’s reputation continues to attract new business. In 2024, the company participated in 299 PRT transactions, including 14 valued at over £1 billion, securing a third of these significant deals.

Other segments of the business, such as insurance and investment management, are also performing well. However, it is the pensions division that is projected to drive long-term growth and support the company’s dividend strategy. Investors focused on generating income may find Legal & General a suitable addition to their portfolios, given its current standing as the highest-yielding stock on the FTSE 100.

Exploring Alternative Investment Opportunities

While Legal & General stands out, investors should also consider other promising options in the marketplace. Currently, there are 10 stocks on the FTSE 100 offering returns exceeding 5.5%, surpassing yields from traditional high-interest savings accounts. Additionally, the FTSE 250 index features 13 stocks with yields higher than that of Legal & General. Many of these are investment trusts, particularly those in the renewable energy sector, which have experienced a decline in share prices due to rising interest rates, yet their yields have increased.

The top 15 stocks on the FTSE 250 include three oil and gas companies. Lower energy prices have negatively impacted their market valuations; however, their robust cash flows have enabled them to maintain consistent dividends.

With its current yield, Legal & General has garnered attention from income investors, solidifying its position as a preferred choice among dividend shares. Nevertheless, the diverse options available in the market warrant careful consideration by those seeking to enhance their investment portfolios.

Investors interested in Legal & General should stay informed about market conditions and the company’s performance. Recognizing the potential of different stocks can help in making well-informed decisions, particularly in a competitive landscape where numerous opportunities exist.