Explore Top Passive Income Stocks: Legal & General Leads the Pack

Investors seeking passive income through dividend stocks have a wealth of options, with many companies offering attractive yields. Among these, Legal & General (LSE:LGEN) stands out for its consistent performance and promising outlook. The stock currently boasts a remarkable yield of 8.7%, a figure that positions it as the highest-yielding stock on the FTSE 100 as of November 28, 2023.

The key to Legal & General’s appeal lies in its historical resilience. The company last cut its dividend during the 2009 global financial crisis, successfully maintaining payouts during the pandemic. Projections indicate a steady annual increase of 2% in dividend payments from 2025 to 2027, potentially making the cash payout nearly six times higher by 2027 compared to 2009 levels. This trend is bolstered by the company’s strong presence in the pension risk transfer (PRT) market.

Growth in the Pension Market

The PRT market has evolved significantly, especially as many pension funds have transitioned from deficit to surplus, thanks to higher interest rates and increased employer contributions. Legal & General has capitalized on this shift, recently managing the pension schemes for BP and Ford in the UK, which combined hold assets worth £6.2 billion. Looking ahead, the company estimates that insurers in the UK, US, and Canada will secure around £1 trillion in funds over the next decade.

Despite these promising developments, Legal & General’s share price has been somewhat disappointing in recent years. Since November 2020, the share price has fallen by 4%, while the FTSE 100 index has seen a considerable increase of 52%. Nevertheless, the company’s established reputation is enabling it to secure new business. In 2024 alone, Legal & General participated in 299 PRT transactions, with a notable third of those valued over £1 billion.

Comparative Opportunities in the Market

While Legal & General remains a strong contender for income investors, other opportunities are also available. On the FTSE 100, there are currently 10 stocks yielding more than 5.5%, outpacing the returns from high-interest savings accounts. The FTSE 250 index features 13 stocks that offer higher yields than Legal & General, many of which are in the renewable energy sector.

In addition, three oil and gas companies in the top 15 of the FTSE 250 have maintained dividends despite lower energy prices affecting their stock valuations. These companies, alongside Legal & General, highlight the diverse investment options available for those focused on passive income.

As Legal & General continues to attract attention for its high yield, investors are encouraged to weigh their options carefully. The company’s strong position in the pension market could sustain its dividend payments, making it a valuable addition for those looking to enhance their income portfolio.

In conclusion, while Legal & General is a standout choice, investors should remain vigilant and explore the broader market for other promising dividend stocks. The landscape is rich with opportunities that cater to various investment strategies.