How many shares in Legal & General are needed to match the State Pension’s income of £12,547?
Image source: Getty Images
Legal & General (LSE: LGEN) shares come with an impressive level of income. Today, the trailing yield is 8.66%, the highest ever FTSE 100. That’s almost double what non-savers can get in a high-priced savings account. So what are we waiting for?
Basically, investors are waiting. Legal & General is currently the second best-selling stock in the UK, according to AJ Bell. It is only beaten Rolls-Royce. So is this a stonewalling, mindless purchase?
In general, a high yield like this seems dangerous. There are risky shareholder payouts that end up being unsustainable, as the underlying business struggles to generate the cash flow needed to fund capital.
Is that huge income sustainable?
But if you look at its share history, Legal & General looks good. The board has increased shareholder payouts in every year of the millennium but three. It cut them in 2008 and 2009, during the financial crisis. And it suspended dividends in 2020, during the violence. But those were rare cases. Otherwise, it seems committed to rewarding long-term investors. Over the past 15 years, fees have grown at an impressive compound annual rate of 10.7%.
However, that is slow. Budget growth has slowed to 5% a year since the pandemic, and will now drop to 2%. As inflation increases due to the Iran crisis, this means that the value of profits will decrease in real terms. But it’s still a level of income.
For the full year 2025, Legal & General boasted a solid Solvency II coverage rate of 210%. That’s down from 232% in 2024. However, that was due to the impact of returning cash to shareholders through a record £1.2bn share buyback, and difficulties in writing new, high-volume pension risk transfer (PRT) business. Overall, the balance sheet looks strong. The board will return £2.4bn to shareholders next year.
Should investors go all in on this stock?
Let’s say the investor really wanted it, and chose to generate an income equivalent to the new full State Pension of £12,547.60 a year, from this one stock. I wouldn’t recommend doing that as variety is important, but I’m interested to see the results.
In 2026, Legal & General looks set to pay a dividend of 22.23p per share. Given that, the investor would need to buy 56,444 shares. At today’s rate of around 251p, that would cost them £141,676.
Our investor would need a large portfolio to do that safely. It’s always better to spread money around, especially since Legal & General’s share price performance has been disappointing. It’s up just 4% over the past year, and down 11% over the past five years. What investors gain from the income they have sacrificed for growth. And, as the UK’s largest asset manager, with £1.2trn to look after, it is vulnerable to today’s stock market volatility.
Of course, stocks may continue to run for some time, so investors can get growth. I suspect they will at some point, but I don’t know when. Either way, Legal & General is a compelling income stock, and worth considering as part of a balanced portfolio. But I wouldn’t go in.
