A Stocks and Shares ISA worth £165,395 could generate enough dividend income to match the full State Pension of £12,570 a year without ever touching the capital. That’s the maths at a 7.6% yield. But is relying on a single high-yielding stock to get there actually a sensible plan?
Crunching the numbers
The pot required depends entirely on the yield assumed:
- At a 7.6% yield: £165,395 needed to generate £12,570 a year
- At a FTSE 100 average 3.5% yield: £359,143 needed for the same income
- Difference: more than £193,000 in required capital
That gap shows exactly why income investors are drawn to higher-yielding names — the right stock can roughly halve a potential savings target. But a higher yield usually comes with a trade-off, so what’s the catch with a stock yielding 7.6% today?
The insurer behind the yield
The stock in question is Legal & General (LSE: LGEN), one of the UK’s largest financial services companies. As I write on Friday 26 June, the shares are trading at 286.9p, up 13.4% over the past year. That gives the company a sizeable market cap of £15.9bn at present.
The dividend itself looks well supported by cash generation, even though the headline price-to-earnings (P/E) ratio of 36.7 looks rich at first glance.
The company is certainly one of the market leaders in the competitive pension risk transfer space. It has also consistently shown an ability to deliver strong payouts to shareholders. In fact, the annual dividend payment has been maintained or increased each year dating as far back as 2009.
The dividend yield of 7.6% sits well above the Footsie average, which is exactly why it shrinks the potential ISA pot needed so dramatically.
Why I wouldn’t rely on this alone
Dividends are never guaranteed — they’re paid entirely at a company’s discretion, and a downturn in markets or higher-than-expected claims could squeeze the payout.
Competition in the pension risk transfer market is intensifying too, with North American giants pushing hard into the UK and putting pressure on margins across the sector.
That’s exactly why building wealth around a single stock is so risky. A more resilient plan based on a diversified portfolio of high-quality names can minimise the risk of one stock derailing the whole plan.
My verdict
In my view, £165,395 is a realistic figure to work towards for investors who start early and stay consistent. I wouldn’t personally be building my strategy around one stock, however attractive the yield looks today.
Diversifying across a handful of dependable dividend payers is, in my view, a far more sensible route to matching the State Pension than betting it all on a single 7.6% yield.
Should you invest £5,000 in Legal & General Group Plc right now?
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Ken Hall does not hold any positions in the companies mentioned.
