Legal & General (LSE:LGEN) shares are one of the most talked-about income opportunities on the FTSE 100 right now. But how much passive income does a £10,000 investment actually put in my pocket?
At today’s share price of around 264p, £10,000 buys roughly 3,789 shares. And at the current payout of 21.79p per share, that translates into an annual passive income of £825.62 – equivalent to around £68.80 a month. That’s not life-changing, but definitely nice to have.
Yet the more important question is whether Legal & General is actually a good investment. After all, a high yield doesn’t guarantee a chunky passive income. And it can often be a warning sign of trouble to come.
So is Legal & General an opportunity? Or is it a trap?
What’s the case for buying today?
Right now, the company appears to be rooted in some genuinely powerful structural tailwinds. Legal & General sits at the intersection of two of the most significant long-term forces in UK financial services: pension risk transfer and retail investment.
As more defined benefit pension schemes look to offload liabilities onto insurers, Legal & General’s market-leading annuity platform is almost perfectly positioned to absorb that demand. The pipeline is enormous and growing.
At the same time, the group’s asset management arm continues to generate substantial fee income from a globally diversified book of institutional and retail clients.
That’s particularly relevant for income investors, given this recurring revenue provides a stable foundation of continuous earnings to support the more cyclical parts of the business. And with management making steady progress in simplifying and optimising operations, the group’s cash flows are looking increasingly more reliable.
So what’s the catch?
Storm clouds gathering
Legal & General’s investment portfolio carries meaningful exposure to credit markets and commercial real estate – two areas that come under material pressure when economic conditions deteriorate.
It’s no secret that the weakened state the UK finds itself in worrisome. And with incoming energy and food price inflation expected to hit households and businesses in the coming months, the risk of rising credit losses for Legal & General is very real. That means, even if cash flows prove resilient, earnings could nonetheless take a tumble.
There’s also competitive pressure in both the bulk annuity and asset management markets to consider. Rivals such as Aviva and Standard Life are aggressively expanding their own pension-risk transfer books, that has already started squeezing prices and margins on annuities across the sector.
Put simply, today Legal & General’s substantial dividend remains covered by cash flows. But any sudden or unexpected deterioration in the market or wider macroeconomic landscape could change that. And it’s why the yield’s currently so high.
So is it worth considering?
For long-term income investors willing to hold through short-term noise, I think Legal & General shares make a compelling case. An £825.62 annual income from a single £10,000 investment is hard to ignore, especially when it’s backed by a business with real structural tailwinds and a management team focused on delivery.
The risks are there, but they feel manageable rather than existential. So now might indeed be a good time to mull this FTSE 100 stock. And it’s not the only income opportunity I’ve got my eye on right now.
Should you invest £5,000 in Legal & General Group Plc right now?
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Zaven Boyrazian has no position in any of the shares mentioned.
