£10,000 worth of Legal & General shares could earn me a monthly passive income of £623!

Legal and General Group‘s (LSE:LGEN) has been one of FTSE 100the hottest dividend stocks in recent years.

Not only has the financial services giant increased annual payments almost every year since the 2008/2009 financial crisis (as shown below), but its dividend yields have also surpassed the Footsie average during the period.

Dividends are never guaranteed. But there is good news for Legal and General stock owners like me. City analysts are advising the company to pay large and growing dividends until 2026 at least.

Using a £10,000 investment today, how much passive income could I generate?

9.8% dividend yield

As an asset manager, life insurer and provider of retirement products, yields here can disappoint when consumers cut back and interest rates rise. In fact, these factors have contributed to double-digit declines in profits in both the last two years.

However, the company’s rich balance sheet means it has been able to maintain dividend growth. In 2023, the annual dividend on Legal & General shares increased by 5% to 20.34p per share.

Encouragingly, City analysts think that cash rewards will continue to increase until 2026 at least, as indicated in the table below.

These forecasts are in line with Legal & General’s plans. And as you can see, dividend yields are above the FTSE 100 historical forward average of 3-4%.

I expect dividends to continue to increase during this period as well. But even if the dividends don’t increase beyond 2026, a £10,000 lump sum investment could still give me a monthly passive income of over £600.

£623 per month

If the broker’s estimates are accurate, I would earn £980 in dividend income in 2026 and £9,800 over a decade. Over 30 years I would enjoy a passive income of £29,400.

But I could earn even more if I reinvested those shareholder payments. Thanks to the mathematical miracle of compounding, after 10 years I would have generated £16,539 in dividends.

And after 30 years, I would have made a total passive income of £176,913, more than six times the £29,400 I would have made without reinvesting.

After adding my initial £10,000 investment, my portfolio would be worth £186,913 (assuming no share price growth). If I were to withdraw 4% a year, I would have an annual passive income of £7,477 and a monthly income of £623.

An important choice?

Legal & General’s share price has struggled to gain traction since late 2021, as shown above. This reflects the impact of higher interest rates — which continue to be a threat in the future — on its business performance.

However, over the next 30 years, I expect the business to deliver healthy share price gains and abundant dividend yield, driven by demographic changes. And then I can have even more passive income to live on than the £623 mentioned above.

As long as Legal & General’s balance sheet remains robust, it will be able to continue paying large dividends and investing for growth. Things certainly look good at the moment, with the company targeting operating surplus cash generation worth £5bn to £6bn between 2025 and 2027.

I think Legal & General stock deserves a serious look from dividend investors.