Should I target £940 of Legal & General dividends by investing £1,000 today?

One of the attractions for me of owning shares in Legal & General (LSE: LGEN) is the income potential. In the past, L&G dividends have been generous – and I think that might be the case in the future too.

In fact, I reckon if I put £1,000 into the shares today, I could well end up earning £940 in the coming decade alone.

Dividend outlook

That estimate is based on the current dividend size and growth rate. At the interim stage this year, the firm increased its payout by 5% compared to the prior year. That is in line with its stated dividend policy of aiming for an annual increase in low- to mid- single digit percentage points.

If the final payout goes up by a similar proportion, the full-year payout should come in at around 19.4p per share.

Should Legal & General dividends continue to be raised by 5% annually, in a decade from now they would stand at around 30p per share each year.

That might not sound like a huge jump over a 10-year period. But it would mean that, buying a single share today for around £2.59, I would hopefully earn around £2.44 in dividends over the coming decade.

So if I put £1,000 into these FTSE 100 shares, I would be on track to get close to that amount (£940) back in the next 10 years – without selling a single share.

Payout risks

However, Legal & General dividends are not guaranteed. No company’s are. The firm has failed to increase its annual payout just once over the past decade, which is when the annual dividend was frozen for a year during the pandemic. Reaching further back, there was another cut during the financial crisis.

As an insurer, Legal & General could see profits fall if claims balloon, due to an occurrence like unusually bad weather. Indeed, that led rival Direct Line to cancel its payout last month.

But I think Legal & General has substantial commercial advantages that could help its business keep performing strongly. It operates in a market with resilient customer demand. A very well-known brand helps keep customer acquisition and retention costs lower than for startup rivals. And long experience in the insurance business should mean the company can price risks profitably overall.

That combination of features helps explain why last year, the company made over £2bn in profits after tax.

My move

I see this FTSE 100 company as a solid, well-run business with strong long-term potential. It has been in existence since the 1830s and I think it likely has a long future ahead of it too.

If I had a spare £1,000 to invest today, I would buy the shares for my portfolio.