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One of the attractions for me to own shares in Legal and public affairs (LSE: LGEN) is the potential income. In the past, L&G’s dividends have been generous — and I think that may be the case in the future, too.
In fact, I think if I put £1,000 into stocks today, I could end up earning £940 in the next decade alone.
This estimate is based on the size of the current distributions and the rate of growth. In the interim phase this year, the company increased its payments by 5% compared to the previous year. This is in line with its stated dividend policy of aiming for an annual increase in the low to medium single-digit percentage points.
If the final dividend rises by a similar percentage, the full-year yield should be about 19.4p per share.
If the statutory and common stock dividend continues to grow at 5% a year, in a decade from now it will be about 30p per share each year.
That may not seem like a big jump over a 10-year period. But this means that, by buying one share today at about £2.59, I hope to earn about £2.44 in dividends over the next decade.
So if I put £1,000 into these FTSE 100 shares, I’m on track to get close to that amount (£940) in the next 10 years – without selling a single share.
However, statutory and general dividends are not guaranteed. There is no company. The company has only failed to increase its annual payment once in the past decade, a time when annual dividends were frozen for a year during the pandemic. And going back, there was another cut during the financial crisis.
As an insurance company, Legal & General could see profits drop if claims swelled, due to an occurrence such as unusually bad weather. In fact, that competitor led direct line To cancel last month’s return.
But I think Legal & General has significant business advantages that can help its business continue to perform strongly. It operates in a market with resilient customer demand. A well-known brand helps keep customer acquisition and retention costs lower than entry-level competitors. Long experience in the insurance business should mean that the company can price risk profitably overall.
This combination of features helps explain why last year the company made more than £2 billion in profits after tax.
I see this FTSE 100 company as a solid, well-run company with strong long-term potential. It’s been around since the 1830’s and I think it probably has a long future ahead of it as well.
If I had an extra £1000 to invest today I would buy the shares for my portfolio.