As their name suggests, income stocks are a great way of generating some extra cash. But instead of spending the dividends on something unnecessary, why not use the money to buy some more shares? In doing so, it’s possible to achieve some impressive gains.
Here’s an amazing example to consider…
Who?
Financial services group Legal & General (LSE:LGEN) has been around since 1836. I’m not sure when it started paying a dividend but it’s now the highest-yielding stock on the FTSE 100.
Based on amounts paid over the past 12 months, it means a £10,000 investment today could produce income of £750 over the next year. Use this cash to buy more shares and dividends of £806 could be unlocked in the second year. Repeat this process for 10 years and the £10,000 lump sum would be worth £20,610.
This is a powerful reminder of the benefits of compounding.
Investing for the long term. Our future depends on it.
L&G website
And a look at recent history reveals that the group has an impressive dividend track record. Over the past five years, it’s increased its payout by 18.1% in cash terms:
- 2025 – 21.79p
- 2024 – 21.36p
- 2023 – 20.34p
- 2022 – 19.37p
- 2021 – 18.45p
In fact, you have to go back to 2009 and the global financial crisis to find the last time it was cut. And there’s one aspect of the group’s business that could underpin further significant growth: the pension risk transfer (PRT) market.
Reducing risk
In the late 1990s/early 2000s, many defined benefit pension schemes moved into deficit due to a combination of increasing life expectancy, the dotcom market crash, and falling interest rates.
But with companies increasing their contributions to help improve the financial position of their schemes, things started to slowly improve. By 2022, post-pandemic increases in interest rates and gilt yields helped reduce the value of scheme liabilities. In many cases, this moved the funds from an overall deficit into a surplus.
Nowadays, this represents a significant opportunity for Legal & General as an increasing number of pension trustees are looking to take advantage of the improved financial position and offload their schemes to third-party providers.
Indeed, it’s a big market. In 2025, there were 350 UK PRT transactions involving around £40bn of benefits. Legal & General’s the market leader and secured £11.8bn in 2025, including £4.6bn from Ford. The group remains on course to meet its target of writing £50bn-£65bn of new business from 2024 to 2028.
My view
Of course, there are no guarantees this strategy will be successful. And the group’s dividend could come under threat. With £1.2trn of assets under management, it’s vulnerable to global stock and bond market uncertainty. Also, competition in the sector’s fierce.
Despite these threats, I still think Legal & General’s a stock to consider. It has over 12m customers across its savings, retirement, and life insurance businesses, which gives it significant scale and financial firepower. At 31 December 2025, the group held more than twice the level of reserves that it’s obliged to have.
As well as helping its PRT division, higher interest rates have also made annuities increasingly attractive to pensioners. The group remains the largest provider in the UK.
In fact, it’s one of many exciting UK stocks that I have in my own portfolio.
What income stock do we like better than Legal & General Group Plc right now?
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James Beard owns shares in Legal & General plc.
