I’ve bought one FTSE 100 income stock after another in recent months, with the aim of generating a high and rising passive income for my retirement.
One of my favourites is insurer and asset manager Legal & General Group (LSE: LGEN) which I’ve bought on three occasions since the summer. I invested my first £1k on 28 April, which bought me 225 shares at 234p each. At the time they were yielding around 7.75%.
I picked up another 451 shares on 6 July when the share price dipped to 219p, then invested £2k buying 903 more on 23 August. On 28 September I received my first dividend of £100.09, which I reinvested to buy another 45 shares.
This is a top FTSE dividend share
I now own a grand total of 1,824 L&G shares at a book cost of £4,097. So far, they’re up a solid 12.42% to £4,606, giving me a £509 paper gain. It’s not riches but these are early days. I’m hoping to watch my Legal & General shares steadily compound for years or, ideally, decades.
The stock may have to raise its game, though. Over five years, the L&G share price has grown just 3.89%. Over 12 months, it’s up just 3.2%.
Recent years have been tough for the stock, but it may get a lift as inflation and interest rates start falling. A stock market recovery should boost the group’s fund arm Legal & General Investment Management, one of Europe’s largest with $1.5trn of assets under management.
At the same time, falling interest rates could hit resurgent demand for annuities, so it won’t be all good news.
L&G is strong in the bulk annuity market, recently completing a £4.8bn Boots pension scheme buy-in, its largest ever. That lifted 2023’s pension risk transfer business to a record £13.4bn.
The dividend looks relatively secure with L&G on track to generate £8bn to £9bn of capital a year. The forecast yield is 8.09% in 2023 and 8.5% in 2024.
Balancing my risk
My stake should generate dividends of around £375 in 2024, with any share price growth on top. As ever, neither is guaranteed.
Legal & General shares still look cheap today, trading at 6.56 times earnings. That offers downside protection and I’d buy more like a shot, if I had the cash.
I don’t expect to retire for another 15 years, and I’ll keep reinvesting all my dividends until then. If the yield holds at around 8% and the share grows a modest 3% a year, I’ll enjoy a total average return of 11% a year on my £4,605.50.
That would boost it to £22,035 when I start drawing my dividends as a second income around 2039. If the yield is still 8% at that point, it would give me income of £1,763 a year, or £147 a month. Not bad from an initial investment of £4,000.
Obviously, I’m counting chickens here. L&G’s dividend may slide over time. The share price could fall or the group could even go bust. Net debt looks a little high at more than £6bn. That’s why I’m building a portfolio of around 15 FTSE 100 shocks, to spread the risk. But L&G is a firm favourite.
The post I’ve bought 1,824 shares of this high-yield income stock to aim for a £150 monthly income appeared first on The Motley Fool UK.
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Harvey Jones has positions in Legal & General Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
