Legal & General (LSE:LGEN) shares currently sport the highest dividend yield in the FTSE 100. So it’s no surprise they remain popular with income investors.
On Thursday (4 June), the insurance and asset management stalwart will pay shareholders the final dividend for FY25. Here are the key details:
- Dividend amount: 15.67p per share.
- Ex-dividend date: 23 April.
- Total dividend for FY25: 21.79p per share.
The ex-dividend date simply means that someone has to own the shares before this date to qualify for June’s payment. So if you owned 2,000 Legal & General shares, you’re in line to receive around £313 on Thursday.
Getting dressed up
The share price has done well, jumping around 15% in a little over a month. However, there have been many false starts over the years with Legal & General stock, and it always seems to trend back to a range of 225p-275p.
Recently, takeover speculation’s been mounting, and this could be behind the share price rise. According to a Financial Times article from mid-May, potential bidders have been taking a very close look at Legal & General.
These include insurers and alternative asset managers. A company insider told the FT: “It feels like we’re being dressed up for a sale“.
I don’t think that’s out of the question because AJ Bell data says the stock’s 10-year annualised return is just 7.24% (versus 9.51% for the FTSE 100). Almost all of this has come through dividends.
As a result, the market-cap today is only £15bn. That’s not very high for a very well- established financial services company managing around £1.2trn in assets. Bits could be broken up and sold off, releasing trapped value.
Don’t bank on a takeover
However, CEO Antonio Simoes had rejected the idea that the firm’s considering a break-up or sale. He’s busy focusing on simplifying the group and increasing its capital-light forms of income.
It’s also worth mentioning that because Legal & General holds lots of UK government bonds, any bid from overseas could be blocked by regulators.
What should I do?
As a shareholder, I’m not banking on an acquisition. But the company is in the middle of a massive £1.2bn share buyback, the largest in its history. So I’m hopeful the stock can keep climbing, even if acquisition chatter fades.
Then there’s the massive 8.2% forward yield. While not guranteed to be met, the firm did recently say it’s still on track to deliver 2% dividend growth each year between 2025 and 2027, on top of buybacks. This is supported by asset disposals.
Beyond next year though, I’m not sure yet if I’ll keep holding shares. The fact that the dividend yield is constantly so high acts as a warning sign that the progressive payout may not be sustainable over time.
One issue is the group’s complexity. After all, Legal & General is a bit of a financial octopus, with tentacles stretching all over, including private markets. This arguably makes it harder to value and see potential hidden risks lurking underneath.
For now, I’ll continue milking this cash cow. But I’m going to keep a close eye on whether the firm’s strategic pivot starts paying off, as getting stuck with an ultra-high-yield dividend stock that goes nowhere can still result in underperformance.
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Ben McPoland owns shares of Legal & General.
