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Yahoo
2 days ago
- Business
- Yahoo
Legal & General shares look like a passive income-generating machine
A significant chunk of my portfolio is constructed around high-yielding stocks, with the aim of earning a passive income. That's not to say I don't expect some stock appreciation along the way. Unfortunately, over the past 10 years, the Legal & General (LSE: LGEN) share price has pretty much gone nowhere. But it has more than made up for it with sector-leading dividend payouts. Shareholder returns I bought my first tranche of shares in the insurance and asset management giant back in 2020. Since then, the dividend per share has risen 21%. Today, the dividend yield is a mammoth 8.6%. Speaking hypothetically, if the yield remained at that rate, and I reinvested dividends along the way, I would double my money in just over eight years! Some may baulk at the lack of capital appreciation. But I look at things in a different way. Unless a stock goes to zero, only two numbers matter to me: the price paid at time of purchase and the price upon sale. Everything in between is just noise. What is of greater concern to me is dividend growth and sustainability. Dividend cover is certainly on shaky grounds, as it is only just covered by earnings. But that said, even when profits fell during Covid, there was no cut. As a long-term investor, what I look for is evidence of a robust business model capable of supporting sustainable cash flows through the ebbs and flows of the business cycle. Pension risk transfer The cash cow for Legal & General is pension risk transfer (PRT), responsible for over 50% of total operating profit in 2024. Defined benefit (DB) (or final salary) pension schemes are no longer the default choice for most UK employers today. However, among existing schemes, PRT remains the most attractive option for DB trustees who are looking at ways of derisking their pension liabilities. Out to 2028, it expects to write between £50bn to £65bn of PRT. This will generate a steady store of guaranteed future profits. It will also enable the business to invest the proceeds from DB providers into its asset management division. Back in February, the business announced the sale of its US insurance entity to Meiji Yasuda. As part of the deal, both companies agreed to enter into a strategic partnership to drive growth in the key US PRT business. One significant risk is growing competition. In a first in the UK since 2007, Brookfield Corporation was granted a dedicated PRT licence earlier this year. The global market is expected to grow to £1trn over the next 10 years, but L&G will need to work hard in order to secure lucrative new schemes. Continued innovation The wealth industry is evolving fast and investors are taking a much more activist approach toward retirement planning. Last year, the business launched the L&G Private Markets Access Fund. This provides investors with opportunities to invest in a wide array of assets, including affordable housing, clean energy, and natural resources. I view this as a massive growth area, particularly in light of the recent government announcement promoting such investment vehicles. I envisage Legal & General remaining a core holding in my Stocks and Shares ISA until I retire. Until that point, I will continue my strategy of pound-cost averaging whenever finances allow. The post Legal & General shares look like a passive income-generating machine appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Andrew Mackie has positions in Legal & General Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025 Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
26-07-2025
- Business
- Yahoo
How much passive income can you potentially earn by investing £500 a month?
Investing in the stock market is a fantastic way to build a passive income, especially since, in 2025, it doesn't take that much money to get the ball rolling. Perhaps one of the most widely discussed strategies is finding and buying shares which pay chunky dividends. And with UK stocks having some of the most generous dividend policies in the world, it's easy to see why this approach is so popular. But realistically, how much money can investors expect to make with only £500 a month to work with? Let's explore. Setting expectations On average, the most mature and established large-cap stocks in Britain have offered a dividend yield of around 4%, while also delivering another 4% in capital gains. This translates into an 8% total return. And investing from scratch with £500 a month at this rate for 30 years, on paper, produces a £750,000 portfolio. Assuming the yield's still the same 4%, that's a passive income of £30,000 a year. And while market volatility may cause this to be higher or lower than expected, it's a reasonable expectation when working on a time horizon of three decades. But what if investors exclusively focus on the stocks which offer more than 4% in annual dividends? What about a company like Legal & General (LSE:LGEN) with its massive 8.3% yield? Well, if it still produces a 4% annual capital gain, not only would the previous portfolio grow to a whopping £1.8m, but the yearly passive income would reach £155,000! Too good to be true? There's no denying that the prospect of potentially earning over a 150 grand without having to lift a finger is exciting. But let's be smart and look at the risks as well as the potential rewards. An 8.3% yield's pretty substantial. Yet it can actually be a warning sign to stay away since this level of payout's exceptionally difficult to maintain. In the case of Legal & General, there are a variety of justifiable concerns surrounding this business. The higher interest rate environment has certainly worked wonders in boosting the firm's revenue and earnings. Yet the company's still paying out more in dividends than it's actually bringing in when looking at the payout ratio. Needless to say, that's not sustainable in the long run. Even more so if the company starts writing badly-priced insurance policies. Don't forget, as a life insurance business, the firm's issued policies can last for decades. And the consequence for misjudging future payouts can be enormous over time. Having said that, management's attempting to improve the coverage situation through structural simplification, merging some divisions while disposing of non-core ones. While interest rates have started to tick down, the bulk purchase annuity market remains strong, giving the group a nice tailwind to piggyback. And if everything goes according to plan, not only would dividend coverage improve, but payouts could rise as well. The bottom line Overall, Legal & General shares present a lucrative dividend opportunity for investors willing to take on considerable financial and macroeconomic risk to consider. As things stand, the risk's too high for my tastes. But the good news is there are plenty of other high-yield opportunities for investors to explore on their journey to building a chunky passive income. The post How much passive income can you potentially earn by investing £500 a month? appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025
Yahoo
06-07-2025
- Business
- Yahoo
See how much an investor needs in a SIPP to earn passive income of £777 a month
My primary goal when investing is to generate passive income from dividend stocks, but I'm not taking a penny of it today. Every coin goes straight back into my Self-Invested Personal Pension (SIPP) to build wealth for my future. When I finally retire, I will use that to generate a regular second income, on top of my State Pension. Ideally, without having to sell shares or draw down the pot. To target a nice round figure like £777 a month, which adds up to a meaty £9,324 a year, I'd need to crunch some numbers. The 4% rule is a common starting point. It suggests that withdrawing that percentage of pension each year should avoid depleting the pot. Based on that, I'd need a pot of £233,100 to generate my target income. That's a decent sum, but not out of reach. I could generate a similar income from a smaller pot, if I focus on high-yielding FTSE 100 stocks like Legal & General Group (LSE: LGEN). Its shares are showing signs of life after years in the doldrums, climbing 12% in the last year. But the yield's the main attraction here. Today, it's 8% on a trailing basis. Over the last year, my total return's close to 20%. I'm happy with that. There's still a long way to go. Latest results, published on 6 March, showed core operating profits up a solid 6% to £1.62bn, while the board announced plans to return more than £5bn to shareholders over three years. That includes a £500m share buyback for 2025, following a £200m programme last year. Legal & General also increased its final dividend to 15.36p, taking the full-year payout to 21.36p, up 5%. While increases are expected to slow to 2% a year between 2025 and 2027, that feels reasonable given that generous yield. It's been a bumpy few years though. Earnings per share have fallen 62%, 43% and 61% over the last three years. That's lifted the price-to-earnings ratio to an eye-watering 88. That doesn't look cheap, but investors could still consider buying the stock today. That's because the dividend appears well-supported and the income can be reinvested while we wait for sentiment and the share price to pick up. No stock is risk-free. Legal & General remains sensitive to market swings, its asset management division has faced margin pressure, and its fortunes are closely tied to UK economic sentiment. Those are things to keep in mind. Back to the passive income goal. If I could build a portfolio yielding 5.5% on average, I'd only need around £169,527 in my SIPP to generate that £9,324 annual income. That's a lot less than the £233,100 required using the 4% rule. Investing's a long game. Getting to that £169,527 target would take time, but with consistency it's achievable. Let's say an investor was starting from scratch, with 30 years before retirement. Investing £150 a month would give them £182,000 over that timescale. This assumes average annual growth of 7% a year, roughly the long-term FTSE 100 average. There will be ups and downs along the way. Dividends can be cut, and share prices do fall. But with a well-diversified income portfolio, I think this is a realistic goal. The post See how much an investor needs in a SIPP to earn passive income of £777 a month appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Harvey Jones has positions in Legal & General Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025 Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
04-07-2025
- Business
- Yahoo
Prediction: in 12 months the under-achieving Legal & General Group share price could turn £10k into…
The Legal & General Group (LSE: LGEN) share price has been stuck in the slow lane for too long. It's up 10% over the last 12 months but that's well behind FTSE 100 rival Aviva, which climbed 30% in the same timescale. The long-term picture's even more painful. Aviva's up nearly 130% over five years, while Legal & General Group has crawled forward by just 9%. However, it means today's buyers can lock in a hefty yield of 8.5%. If Legal & General's share price and dividend forecasts hold up, investors could be in for a pretty decent 12 months. There's another consolation. On 12 March, the group's full-year results included a £500m share buyback. That followed a £200m buyback last year, with £1bn more lined up once it completes the sale of its US protection arm. Core operating profits rose 6% to £1.62bn in 2024, helped by strong showings in retail and institutional retirement. It also lifted the full-year dividend to 21.36p, up 5%. However, the board's now capped annual dividend-per-share growth at 2% from 2025 to 2027. On 17 June, the group outlined ambitious growth plans for its asset management arm. It's aiming to boost annual operating profit to between £500m and £600m by 2028, helped by rising demand for private markets and retirement products. With £1.1trn under management, it's already the UK's biggest asset manager. It also expects group earnings per share to rise 6-9% in 2025. That all sounds like a decent platform for long-term wealth creation. Yet recent history's been rough. Earnings per share have tumbled 62%, 43% and 61% in the last three years. That's left the stock with a price-to-earnings ratio of 88. On paper, that looks horribly expensive. This stock isn't risk-free. It remains highly exposed to UK consumer and business confidence. Asset management margins are under pressure, and if interest rates fall that could hit demand for annuities. The 10 analysts offering 12-month price targets see the stock hitting 274p, up around 9.75% from today's 250p. Add in the forecast 21.9p dividend and the yield hits 8.77%. That lifts the potential total return to roughly 18.5%. If that plays out, £10,000 could grow to around £11,850. Of course, forecasts are rarely spot on. But for a slow-and-steady stock like this, that would be a solid year. I prefer to think about the longer term. Over time, compounding does the heavy lifting. Reinvesting dividends during market dips can help too. I hold Legal & General and I'm not selling. The income's way too attractive to give up. I'm hoping it plays catch-up with Aviva, eventually, but there are no guarantees in today's uncertain economic climate. That worrying P/E won't fix itself overnight. Still, with that blistering rate of income intact and the business shifting gear, I think Legal & General's worth considering today. The post Prediction: in 12 months the under-achieving Legal & General Group share price could turn £10k into… appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Harvey Jones has positions in Legal & General Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025 Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
28-06-2025
- Business
- Yahoo
8.4% yield! I'm eyeing this share for my SIPP in July
It is just a few days until the first half of the year ends and July begins. That seems like an opportune moment to review a Self-Invested Personal Pension (SIPP) and consider any potential sales or purchases. My own SIPP is lighter on income shares that it was a few months ago. While some growth opportunities continue to attract me, I would also be happy to pick up some income shares in July if I have spare funds to invest. One that has caught my eye is Legal & General (LSE: LGEN). A track record in the stock market, as elsewhere in life, does not necessarily give us a reliable indicator of what may happen next. But it can still contain valuable data. Take Legal & General's track record as an example. It has proven its business model over the long run, with a consistent ability to generate profits in recent years. It has also proven willing to use cash flows to help fund dividend growth. The last cut in the dividend per share followed the financial crisis. Only in one year since then – during the pandemic – has the firm failed to raise the payout per share. While that was 5% in recent years, growth is pencilled in for 2% annually in coming years. That is modest, but it is still growth. So it is attractive to me, given that the share already offers an 8.4% dividend yield. What about the opportunity for share price gain? Here I am less optimistic. Legal & General has seen its share price grow over the past five years. But at 17%, that growth has badly underperformed the wider FTSE 100 index's gain of 42% during that period. I also see some reasons that the share price could fall. The changed dividend policy is one, not just because of the lower growth trajectory but also because it could be seen as a sign of weakness. That said, the company has promised to return cash through share buybacks too, but many investors including myself see dividends as a more tangible form of shareholder return than buybacks. Profits have been notably weaker in the past three years than they were before. Last year, for example, net profit of £191m was less than a 10th of what it had been in 2021. With a highly competitive market for the sort of retirement-linked financial products in which it specialises and volatile stock markets risking weaker stock market returns, I see threats to future earnings too. Another such threat to earnings is the company's planned sale of a large US business. The upside of that however, is that it should generate a sizeable cash sum. That could help support the planned dividend growth. On that basis, I do not see the current Legal & General share price as a screaming bargain. But in my SIPP I am happy to buy, for the long term, shares in great companies at attractive prices. I do think this high-yield FTSE 100 share is fairly priced and I like its long-term business prospects, thanks to its strong brand and large customer base. So I will be happy to buy it next month if there is spare money in my SIPP. The post 8.4% yield! I'm eyeing this share for my SIPP in July appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool C Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025 Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
