Legal & General (LSE: LGEN) stands out in my investment portfolio as a significant source of income. Its impressive dividend yield of over 9% is particularly striking for a member of the FTSE 100 index, which prompts me to continue holding onto these shares. However, when pondering the potential market downturns and the implications they may bring, I can’t help but consider certain scenarios that may impact my investment in Legal & General.
Potential Concerns:
-
Possibility of a dividend cut: The company has outlined its intentions to ramp up its dividend payments in the future. Yet, past instances during the 2020 pandemic and the 2008 financial crisis have shown that the dividend cuts are not entirely out of the realm of possibility in times of market turbulence. This puts into perspective the risks involved, especially during a financial crisis where pressure on financial services firms is heightened.
- Clients’ eagerness to access their investments coupled with fluctuating investment valuations could trigger a scenario where Legal & General might have to trim its dividend payouts.
-
Upside in a Downturn: Despite the looming threat of a dividend cut, the prospect of a stock market downturn may unveil new opportunities for investors like myself. The anticipation or actual occurrence of a dividend reduction might drive the share price down, thereby enabling a chance to secure Legal & General shares at a discounted rate.
- In the event of the dividend being upheld or restored after a cut, similar to the 2008 scenario, a lowered share price could translate to a potentially higher dividend yield in the long run. This could prove advantageous for long-term investors, waiting for the right moment to optimize their returns.
-
The Positive Traits: Legal & General boasts several factors that work in its favor, despite the inherent risks associated with the financial services industry. Its strong focus on retirement-related products, a market poised for long-term growth, alongside a substantial customer base and a reputable brand, underpin its solid standing in the market.
- The company’s strategic plans to moderate the annual dividend growth from the coming year onwards may slightly dampen its attractiveness as an income venture. Nevertheless, the commitment to expanding its dividends, along with the current enticing yield, provides a compelling proposition for income-seeking investors.
In conclusion, Legal & General remains on my radar as a potential candidate for future investments, particularly during market downturns that could present a lucrative opportunity to enhance my income stream. While the risks surrounding dividend cuts persist, the company’s resilient position in the market and its strategic initiatives to sustain and grow dividends keep it a compelling income share for investors seeking long-term wealth accumulation.
Leave feedback about this