Legal & General’s Dividend Yield Projected to Reach 8.9% by 2028

Legal & General (LSE: LGEN) is emerging as a significant opportunity for dividend investors, with current forecasts suggesting a yield increase from 8.1% to an impressive 8.9% by 2028. This anticipated growth comes despite the stock trading at a substantial 57% discount to its estimated fair value.

Strong Dividend Growth and Market Position

The company has consistently raised its dividend payouts since 2020, increasing from 17.57p to 21.36p in recent years. The annual dividend yields during this period were 6.6%, 6.2%, 7.8%, 8.1%, and most recently, 9.3%. Currently, the stock price stands at £2.63, yielding 8.1%. Analysts project further increases, estimating dividends of 22.2p this year, 22.7p next year, and 23.4p by 2028, resulting in yields of 8.5%, 8.7%, and 8.9% respectively. For comparison, the average dividend yield in the FTSE 100 is only 3.2%.

Analysts have identified a considerable valuation gap. On a discounted cash flow (DCF) basis, shares are currently valued at approximately 57% below fair value, primarily based on expected earnings growth. This discrepancy is notable for a major player in the FTSE 100, which typically enjoys a robust record of profitability and reliable cash generation.

Financial Resilience and Future Prospects

Legal & General’s recent financial performance underscores this valuation disparity. The company reported a 6% year-on-year growth in core operating profit, reaching £1.62 billion for the full year ended March 12, 2025. Core operating earnings per share (EPS) also increased by 6% to 20.23p. The firm generated £1.8 billion in Solvency II capital while maintaining a strong coverage ratio of 232%, significantly above the industry standard of 100%. Additionally, a £500 million share buyback program was announced, reflecting management’s confidence in future cash flows.

In its subsequent results for the first half of 2025, released on August 6, operating profit again rose by 6% to £859 million, with operating EPS jumping 9% to 10.94p. While competition in retirement solutions and asset management poses some risk to margins, analysts anticipate an impressive annual average earnings growth of 21.3% through the end of 2028.

For those considering an investment, an additional £20,000 at an average yield of 8.9% could yield approximately £28,543 in dividends over a decade, assuming reinvestment of dividends. Over a 30-year term, total dividends could accumulate to £265,968, with the holding’s overall value reaching approximately £285,968 and annual dividend income of £25,451.

Given the stock’s current valuation and strong growth prospects, many investors may consider increasing their holdings in Legal & General in the near future.