Legal & General shares moved higher on Thursday, rising 2.41% to 246.80p after the FTSE 100 insurer experienced a sharp sell-off earlier in the week. The rebound follows a significant 6% decline on 11 March that pushed the stock down to around 242p and roughly 14% below its 2026 highs.
The recent volatility has drawn fresh attention from investors because the drop in the share price has pushed Legal & General’s dividend yield close to 9%. For income-focused investors, that level of yield can look particularly attractive in the current market environment. However, the company’s latest results also highlight several risks that investors need to consider before viewing the stock purely as a high-income opportunity.
2025 Results Triggered the Initial Share Price Drop
The sell-off came shortly after Legal & General released its full-year 2025 results. While the results were not disastrous, they contained a few weaker elements that appeared to disappoint the market.
Core operating profit came in at £1.62bn for the year, representing a 6% increase compared with the previous year. However, the figure still fell short of analyst expectations, which had been around £1.65bn. Even a small miss against forecasts can sometimes trigger negative market reactions, especially for large, well-followed companies.
Another issue investors focused on was the company’s Solvency II coverage ratio. This metric, which essentially measures the financial strength of an insurance company, stood at 210% at the end of the year. While that remains comfortably above regulatory minimums, it was below the 219% analysts had expected and also down from 232% a year earlier.
The company is now targeting a medium-term solvency range of between 160% and 190%. While still healthy by industry standards, the downward trend in the ratio appears to have raised questions about capital buffers and financial flexibility.
Dividend Raised but Coverage Is Tight
One of the biggest talking points in the results was the dividend. Legal & General increased its full-year dividend by 2% to 21.79p per share. On the surface, a dividend increase is usually seen as a positive sign of confidence from management.
However, there is an important detail investors cannot ignore. Core operating earnings per share for 2025 came in at 20.93p. This means the dividend payout is now slightly higher than the company’s earnings.
In other words, earnings are no longer fully covering the dividend payments. When this happens, investors often start questioning whether the current payout level can be maintained in the long term. It does not necessarily mean a dividend cut is imminent, but it increases the risk that the company could adjust its payout policy in the future.
Despite this concern, the yield remains extremely attractive. At the current share price around the mid-240p range, the dividend yield is approaching 9%, making Legal & General one of the highest-yielding major stocks in the FTSE 100.
Share Buyback Could Support Future Earnings
Alongside the results announcement, Legal & General also revealed plans for a £1.2bn share buyback programme. Buybacks can help improve earnings per share over time by reducing the number of shares in circulation.
If executed effectively, the buyback could help strengthen earnings metrics and partially offset some concerns about dividend coverage. For investors taking a longer-term view, this capital return strategy could support the stock’s overall investment case.
Valuation and Analyst Expectations
Despite the recent volatility, some analysts believe the shares may still offer reasonable value. Based on the company’s earnings figures, the stock trades on a trailing price-to-earnings ratio of roughly 11.6, which is relatively modest for a large financial services company.
Some valuation models suggest the shares could be slightly undervalued. For example, one analysis estimates a fair value of around £2.67 per share compared with the recent trading level near £2.41–£2.46. Analyst price targets also vary widely, with the most bullish estimates reaching £3.35 while more cautious forecasts sit closer to £2.10.
Investors interested in reviewing the company’s financial updates and investor materials can visit the Legal & General investor relations page. The latest trading information is also available on the London Stock Exchange listing page.
Long-Term Performance Remains Solid
Although the recent share price movements have been negative, the longer-term performance still looks relatively stable. Over the past year, Legal & General has delivered total shareholder returns of about 9.85%, while the five-year return stands at roughly 26.4%.
This indicates that despite short-term volatility, the company has continued to generate value for investors over extended periods.
Key Risks Investors Should Consider
Even with its attractive dividend yield and strong brand position in pensions and retirement services, Legal & General faces several risks.
The most obvious is the potential for a dividend cut if earnings remain below the payout level. A reduction in the dividend would likely put additional pressure on the share price.
Market conditions also play an important role in the company’s performance. Because a large portion of its revenue is tied to assets under management, a sharp downturn in equity markets could negatively impact earnings.
There are also emerging concerns in the private credit market, where Legal & General has increased its exposure in recent years. Stress in this sector could potentially lead to issues such as loan defaults or investor withdrawals.
Opportunity or Income Trap?
The recent rebound to 246.80p shows that some investors are already stepping in after the sell-off. The combination of a relatively low valuation and a dividend yield approaching 9% can certainly look appealing.
However, the latest results also highlight why the stock is yielding so much in the first place. Questions around dividend coverage, solvency trends, and exposure to broader financial markets mean that Legal & General may be better suited to cautious income investors rather than aggressive buyers.
For now, the stock remains an interesting case study in the balance between high yield and risk. Whether the recent dip ultimately proves to be a buying opportunity or a warning sign will likely depend on how the company’s earnings and capital position evolve over the coming years.
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