Legal & General Dividend Yield Tops FTSE 100 — But Can It Fund Early Retirement?

The Legal & General dividend yield of 7.5% is the highest of any constituent in the FTSE 100, making the financial services group one of the more discussed names for investors who want to replace earned income with passive income from shares. The arithmetic is more involved than the headline yield suggests, but the long-term case is coherent if the investor has time and discipline.

The Income-Replacement Maths: What It Actually Takes

Start with a simple calibration. A 6% yield, which is roughly double the current FTSE 100 average, pays £6 a year for every £100 invested. To replace the average UK weekly earnings of £749, as reported by the Office for National Statistics in its May data, an investor needs an annual income of £38,948. At a 6% portfolio yield, the required pot sits at a little over £649,000.

That is not a figure most people can accumulate overnight. But consider the compounding path: invest £1,000 a month, compound the portfolio at 6% per annum, reinvest all dividends until the target is reached, and the pot arrives in roughly 25 years. Someone starting from scratch today at age 35 could, on this model, stop working on dividends alone by 60, ahead of the current State Pension age.

Higher monthly contributions or a higher yield shorten the timeline. A yield of 7.5%, such as LGEN currently carries, would reduce the required capital to roughly £520,000 at the same income target, accelerating the schedule materially. The caveat is that higher-yielding shares carry specific business risks, and dividends are never guaranteed.

Legal & General Dividend Yield: The Track Record Behind the Number

LGEN, listed on the London Stock Exchange, has delivered steady per-share dividend growth. The full year 2023 total dividend was 20.34p, rising to 21.36p for full year 2024 and to 21.79p for full year 2025, according to the company’s own retail shareholder centre. That progression reflects a five-year dividend growth rate of 4.4%, per Investing.com’s dividend history data.

At its June 2024 Capital Markets Event, Legal & General’s board stated its intention to grow the dividend per share by 5% for full year 2024, and by 2% thereafter. Alongside that, the board announced a £200 million share buyback in 2024, with further similar buybacks planned in subsequent years through to 2027, as a means of returning additional capital to shareholders rather than maintaining the faster 5% annual dividend growth pace.

The next full year ex-dividend date is 23 April 2026, with a payment date of 4 June 2026, according to the company’s published schedule. Investors entering now would participate in that distribution if they hold shares before that date.

The company operates across five segments: Institutional Retirement, Asset Management, Insurance, Retail Retirement and Corporate Investments, as noted by Fidelity’s Legal & General factsheet. The pensions and retirement savings exposure gives the business a structural demand tailwind, and the group has consistently demonstrated cash generation sufficient to support its distributions.

Where the Thesis Could Break

The share price has risen roughly 10% over five years, lagging the FTSE 100’s 47% over the same period. That underperformance reflects real pressures: Legal & General is selling a substantial US business this year, which will reduce revenues and profits in the near term. Any deterioration in the group’s cash generation, or a decision to reduce or suspend the dividend, would undermine the income-replacement thesis directly.

The 2% post-2024 dividend growth guidance is also more modest than the 5% pace investors had grown accustomed to. In a higher-inflation environment, a 2% nominal dividend increase means real income erosion for anyone relying on the portfolio to maintain purchasing power.

For investors who can accept those risks and have the patience for a multi-decade compounding period, the Legal & General dividend yield offers a concrete entry point into an income-replacement strategy. The next test is whether the post-sale business can sustain its cash generation when the US revenues are gone: the first full-year results after the disposal will answer that question.