I’ve been considering buying more Legal & General (LSE: LGEN) shares in recent weeks. With their 9.1% dividend yield, can you really blame me?
However, the stock hasn’t been the greatest performer on the FTSE 100 in recent times. In fact, it’s been far from. It’s down 4% in the last six months, 9% in 2024, and 3% over the last 12 months.
But despite its poor performance, is it worth buying shares for the enticing passive income?
Sustainability
There are a couple of questions that need to be answered. The first is how sustainable is its yield?
Dividends are never a guarantee. Just ask Vodafone or Burberry shareholders. The former’s slashing its payout in half next year while the latter’s recently axed its dividend altogether.
So how does Legal & General’s dividend look? Pretty solid, I reckon. Firstly, it’s covered around 1.8 times earnings. Two is often considered the benchmark for a sustainable dividend. So it’s not far off that.
Secondly, its payout’s been steadily rising in the last decade, which is a green flag I often look for. In 2014, it paid a dividend of 11.25p per share. Last year, it was 20.34p. During that time, its payout’s risen every year except for 2020, where it remained flat at 17.57p.
Other actions
There are other actions the business has taken that I like as well. For example, it’s set to end its five-year cumulative dividend plan this year. In 2020, it laid out a plan that included the aim of generating between £5.6bn to £5.9bn of cumulative dividends by the end of 2024.
To reach that, it’s been raising its dividend by 5% each year. In its most recent update, it said it was on track to achieve its original aim.
A fresh approach
With the above in mind, I think Legal & General’s a stock for me to consider buying more of. I love the passive income it provides. However, it’s worth noting a recent change to its dividend policy.
From next year onwards, its dividend will rise by 2% instead of 5%. That said, I won’t be complaining as long as its payout keeps rising.
It’s also worth taking a closer look at what could hinder the business moving forward. The biggest threat right now’s economic uncertainty.
That’s why the stock’s struggled over the past couple of years. High inflation and interest rates impact investor confidence, which affects the firm. For example, its assets under management have been volatile lately. A delay in future rate cuts would spell trouble for the business.
One to consider
But all in all, Legal & General’s a stock I plan to own for a long time, largely down to the income on offer.
Its dividend looks sustainable. What’s more, I think the business has plenty of growth opportunities to capitalise on that will help it keep generating strong profits and therefore rewarding shareholders. In the weeks ahead, I plan to add to my position.
This post was originally published on Motley Fool
