Legal & General (LSE: LGEN) continues to top the most-bought lists on UK investment platforms, making it the country’s most popular dividend stock by that measure.
The insurer’s forecast dividend yield of 8% is currently the highest on the entire FTSE 100, giving income investors an immediately compelling reason to take notice.
However, experienced investors know that chasing yield alone without examining the underlying business fundamentals can be a costly mistake over the long term.
Legal & General’s case for dividend sustainability goes well beyond its headline yield figure, with a range of financial indicators pointing to a company in solid shape.
The company carries a Solvency II coverage ratio of 210% and held £17bn in cash and equivalents on its balance sheet as of 31 December 2025, signalling considerable financial strength.
In March, CEO António Simões announced the largest share buyback in the company’s history, committing £1.2bn to returning capital to shareholders alongside dividend growth.
Simões said at the time: “This week we will begin a £1.2bn share buyback, the largest in our history, which, together with guided dividend per share growth of 2% this year, will bring planned returns to shareholders to £2.4bn over the next year.”
Despite those positives, there are real concerns that investors should weigh carefully before committing capital to the stock at current levels.
The 2% dividend per share growth guided for 2025 is modest, and forecasters currently expect earnings to fall in 2027, which could push the price-to-earnings ratio to around 11.5 assuming no share price movement.
Legal & General shares have also notably lagged the wider FTSE 100 index by a significant margin over the past five years, raising questions about capital appreciation potential.
Stubborn inflation remains another variable that could weigh on the business, even as higher bond yields offer income investors a competing low-risk alternative to dividend equities.
For those comparing options within the insurance sector, rival Aviva carries a more modest forecast yield of 6.4%, but its price-to-earnings ratio is expected to fall rather than rise in the years ahead.
Analysts who favour diversification may find Aviva’s trajectory on valuation more reassuring, even if the headline yield is less eye-catching than what Legal & General currently offers.
For long-term investors building a dividend-focused ISA portfolio, Legal & General remains a stock worth serious consideration, provided it forms part of a well-diversified spread across multiple sectors.