Legal & General (LSE: LGEN) has delivered one of the FTSE 100’s standout performances over the past year, with its share price climbing close to 30%.
That gain comfortably outpaces the FTSE 100 average return of 18% over the same period, making it a notable performer on the index.
For years, Legal & General shares offered one of the highest dividend yields on the FTSE 100, lingering above 10% for extended periods and remaining in the high single digits throughout much of that time.
Typically, a yield that elevated signals one of two outcomes: either investors pile in and push the share price up, compressing the yield, or the dividend proves unsustainable and gets cut or cancelled outright.
Unusually, neither of those scenarios materialised for Legal & General until relatively recently, when the share price finally began to move meaningfully higher.
The company’s ongoing streamlining of operations appears to have been a key driver of the rally, with cost cuts and disposals of less profitable business units boosting the bottom line.
Operating profit rose 7% in the first half of the year, with full-year guidance pointing to a rise of close to 9%, signalling that the strategic overhaul is delivering tangible results.
Share buybacks have added further momentum, with the firm committing to return £5bn to shareholders between 2025 and 2027, a substantial figure for a company with a market capitalisation of £17bn.
Despite the strong run, sentiment among analysts has shifted sharply, with UBS, Goldman Sachs, and Citi all downgrading the stock to a Sell rating in recent days.
Legal & General now carries the dubious distinction of holding 11 Sell or Strong Sell ratings and just one Buy rating, a stark reversal from a year ago when Buy ratings outnumbered Sells.
A central concern among bearish analysts is whether the dividend remains affordable, with questions arising over whether earnings sufficiently cover the level of shareholder returns being distributed.
As a complex financial services firm dealing in sophisticated instruments, Legal & General is rarely straightforward to analyse, making it harder for investors to assess the true sustainability of its payout policy.
The possibility that the company is overextending itself in its cash returns to shareholders is a risk that cannot be easily dismissed, particularly given the scale of the £5bn commitment.
John Fieldsend, who owns shares in Legal & General, noted that while he does not consider the concerns severe enough to sell, he would not rush to open a new position in the stock at current levels.
For investors weighing up the FTSE 100’s highest dividend yield against a mounting wall of analyst scepticism, Legal & General presents a genuinely complex and finely balanced decision.