The FTSE 100‘s like a sweet shop for passive income investors, with loads of juicy dividend stocks to choose from.
Today, the blue-chip index yields on average 3.68%, with any share price growth on top. I can easily beat that by targeting ultra-high income stocks like asset manager and insurer Legal & General Group (LSE: LGEN).
The recent stock market dip’s knocked the Legal & General share price, making it look an even bigger bargain, while driving its yield to nosebleed levels.
The stock currently has a trailing price-to-earnings ratio of 12.8. Its forecast P/E for 2025 is just 9.74 times. It seems good value to me.
The stock hasn’t done too well lately
Even as a fan, I have to admit that Legal & General’s shares have disappointed. They’ve dipped 9% over the last 12 months, and 27% over five years.
Much of that is down to forces beyond its control, such as the pandemic, energy shock and cost-of-living crisis. The group has a massive £1.2trn in assets under management, so it’s on the front line of stock market volatility.
So what about these things it does have some control over? First-half results published on 7 August showed core operating profit edged up from £844m to £849m, but profit after tax fell from £377m to £223m.
Its 4 December update maintained full-year profit guidance and teased investors with the prospect of share buybacks in 2025. But for me, it’s the dividend that matters.
The trailing yield’s a blockbuster 9.54%. In 2025, that’s forecast to hit 9.78%. As a rule, double-digit yields are vulnerable. Yet this one looks sustainable as the board anticipates cumulative Solvency II capital generation of £5bn to £6bn from 2025 to 2027.
My worry is that it might need to dip into that capital, given that the forecast yield is covered just 0.9 times by earnings. I remain optimistic though. The board hiked the 2024 dividend per share by 5%, and forecasts 2% growth “thereafter”. Barring shocks, I’m hopeful this will come through.
I’m looking forward to those dividends
I personally hold 1,980 shares in Legal & General. With the dividend per share forecast to hit 21.8p in 2025, I’m expecting to get £431 worth of dividends over the next 12 months. Reinvested at today’s price of 2.21p, that would buy me another 195 shares.
So I’ll still be building my long-term wealth even if the share price doesn’t grow next year. So what do the experts say? The 15 analysts offering one-year forecasts have produced a median target of 263.7p. If correct, that’s an increase of 18.6% from today. Combined with that yield, I’d be looking at a total return north of 28%.
Obviously, a lot could go wrong. Continuing higher interest rates will weigh on the shares, as investors can get higher yields from cash and bonds without risking their capital. The UK economy looks set for a rough ride, while heaven knows what President-elect Donald Trump will bring.
Yet with a long-term view I expect Legal & General shares to reward my faith in them, starting with that mighty 2025 yield.
This post was originally published on Motley Fool
