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Legal and general's (LSE:LGEN) has proven to be one of the FTSE 100 IndexThe highest dividend stocks to buy in recent times.
As the chart shows, annual payouts have risen steadily since the 2008/2009 financial crisis. The only exception came in 2020, when the company froze dividends in response to the global pandemic.
Its resilience is partly due to its diversified business model. Its presence in life insurance, pensions and asset management helps protect its earnings and supports stable cash flow, which is essential for dividends. It is also due to the company's solid financial foundations.
Fortunately, the company has promised to increase dividends at least through 2027. According to its plans, shareholder payouts will look like this:
| Year | Dividend per share | Dividend growth | Dividend yield |
|---|---|---|---|
| 2024 | 21.36p | 5% | 9.5% |
| 2025 | 21.79p | 2% | 9.6% |
| 2026 | 22.23p | 2% | 9.8% |
As you can see, dividend yields are approaching double digits, which is a tempting prospect. However, before buying dividend stocks, I need to think about how realistic these forecasts are.
I also have to consider whether further share price weakness could offset the larger dividends. Here's my take on the financial services giant.
Balance sheet strength
At first glance, Legal & General doesn't appear to be the safest dividend stock on the market, according to its easy-to-calculate dividend coverage ratio.
Any reading of 2 or more provides a wide margin of safety. Unfortunately, coverage on this Footsie stock ranges from 1 to 1.2 times through 2026.
In theory, this leaves virtually no room for error if profits are not as expected. However, Legal & General still has a strong balance sheet that it can draw on to pay large dividends.
In June, the company's Solvency II capital ratio was an impressive 223%. It has so much cash that the company has also announced a £200m share buyback programme and has promised similar buybacks in the coming years.
It's encouraging that poor dividend coverage is a long-standing feature of Legal & General stock, but this hasn't been an obstacle to the company reliably raising dividends for more than a decade, as I described above.
Solid foundations
As I mentioned, I am also looking for stocks that can maintain or, ideally, increase their price. In the chart above, you will see that Legal & General's share price has fallen dramatically lately.
This primarily reflects investor discontent with the company's plans to raise dividends at a slower pace between 2025 and 2027. Investors are also concerned about potential execution risks as it revamps its asset management division.
But I firmly believe that Legal & General shares will recover strongly, driven by growing demand for its products due to changing demographics in its markets.
In particular, I am encouraged by the company’s ambitious targets for the rapidly growing pension risk transfer (PRT) market. The company plans to generate £50-£65bn of business in the UK alone by 2028.
Legal & General will have to overcome some tough competition to realise its growth potential, but its status as a market leader across multiple product segments shows that it knows how to thrive in a tough environment. I think this is one of the most attractive Footsie dividend stocks to consider right now.