Legal & General Forecasts 8.9% Yield Amid 57% Valuation Discount

Legal & General (LSE: LGEN) is positioned as a significant opportunity for investors seeking high dividend yields. Currently, the company offers a yield of **8.1%**, with projections indicating this could rise to an impressive **8.9%** by **2028**. Despite this attractive income potential, the stock trades at a remarkable **57% discount** to its estimated fair value.

Investors are keen to understand how much a further investment of **£20,000** in Legal & General could yield over time. The insurance and investment giant has consistently increased its dividend payouts annually since **2020**. Over this period, dividends have grown from **17.57p** to **21.36p**, reflecting annual yields of **6.6%**, **6.2%**, **7.8%**, **8.1%**, and **9.3%**. Based on the current share price of **£2.63**, the stock maintains its **8.1%** yield.

Future Dividend Growth and Valuation Analysis

Analysts expect the upward trend in dividends to continue, forecasting payouts of **22.2p** this year, **22.7p** next year, and **23.4p** by **2028**. These projections would translate into yields of **8.5%**, **8.7%**, and **8.9%**, respectively. For context, the average dividend yield in the FTSE 100 is merely **3.2%**.

A crucial aspect of Legal & General’s appeal is its valuation. According to discounted cash flow (DCF) analysis, the shares are estimated to be **57% below their fair value**, suggesting that the market does not fully recognize the company’s profitability and cash generation capabilities. This valuation gap is particularly striking for a major player in the FTSE 100, indicating potential for capital appreciation as asset prices generally trend towards their fair value over time. My calculations suggest a fair value of approximately **£6.16** per share.

Strong Financial Fundamentals

Legal & General’s latest financial results reinforce the notion that the current market discount may not accurately reflect its robust fundamentals. The company reported a **6%** year-on-year increase in core operating profit, reaching **£1.62 billion** for the full-year results released on **12 March 2025**. Core operating earnings per share (EPS) also grew by **6%** to **20.23p**. The firm generated **£1.8 billion** of Solvency II capital, maintaining a strong coverage ratio of **232%**, well above the industry minimum of **100%**. Additionally, the announcement of a **£500 million** share buyback further underscores management’s confidence in future cash flows.

Subsequent half-year results released on **6 August 2025** indicated continued growth, with operating profit again rising by **6%** to **£859 million** and a **9%** increase in operating EPS to **10.94p**. Despite the competitive landscape in retirement solutions and asset management, which could pressure margins, analysts project an impressive annual average earnings growth rate of **21.3%** through the end of **2028**.

Investors considering a further **£20,000** investment at an average yield of **8.9%** could anticipate generating **£28,543** in dividends over a decade, assuming dividends are reinvested—a strategy known as dividend compounding. Over a period of **30 years**, total dividends could reach **£265,968**, with the overall value of the investment potentially climbing to **£285,968**, yielding **£25,451** annually in dividends.

Given these compelling factors, including the stock’s substantial discount to fair value and strong projected earnings growth, many investors, including myself, are considering increasing their holdings in Legal & General soon. This opportunity exemplifies the potential for significant returns within the market.

The insights provided here reflect the author’s perspective and do not necessarily align with official recommendations from investment advisory services.