There’s nothing quite as satisfying as seeing a steady stream of passive income roll in each year. For me, one of the most reliable contributors to that flow has been Legal & General (LSE: LGEN) – a company that’s been part of my portfolio since the start and remains one of my most dependable earners.

Best known for its life insurance business, Legal & General was also one of the early pioneers of low-cost index tracker funds, making it a familiar name for both institutional and retail investors. Alongside this, it provides a range of consumer-facing retirement products such as annuities, drawdown plans, and lifetime mortgages.

Yet despite its strong foundations, the stock’s been under pressure. Over the past three months, it’s slipped 6.2%, pushing the yield up to a hefty 9%. Analysts currently estimate the firm to be trading around 54% below fair value based on discounted cash flow models. Even modest growth could potentially support total annual returns near 10%, meaning an investor’s capital could double in roughly a decade (assuming the yield holds).

So should I be topping up my holding?

A deeper dive

Recent results haven’t exactly impressed. Revenue dropped 39% year on year (yoy) to £31.33bn, while earnings fell 31.8% yoy to £230m. That leaves the group with a razor-thin net margin of just 0.69% – hardly reassuring for those seeking dependable growth. 

Despite that, forecasts remain surprisingly upbeat, with average earnings growth expected to be around 39% a year over the next three years. Out of 16 analysts covering the stock, five rate it a Buy, eight a Hold, and three a Sell, with an average 12-month price target of 261p – about 10.6% higher than the current share price.

Still, life insurance accounting’s notoriously complex. The long timelines involved and the unpredictable nature of claims and returns make it difficult to read the numbers with absolute confidence.

Risks worth noting

Legal & General’s been very active in the bulk annuities market – a space where insurers take on pension liabilities from other firms in return for a fee. If it can invest those assets profitably, it wins. But if markets turn or investment returns disappoint, the results can swing hard in the opposite direction.

Another concern is interest rates. Falling rates can inflate the value of future liabilities, squeezing returns on reinvested assets as older holdings mature. For a business so deeply tied to long-term investments, this could present a real challenge.

My verdict

A 9% yield and a stock trading more than half below fair value look compelling on paper. But those figures don’t guarantee returns – dividends can be cut, and cheap shares can always get cheaper.

As a cautious investor, I prefer to wait for clearer signs of recovery. Legal & General’s balance sheet is solid, but the low margins and sector complexity leave me hesitant to buy more right now.

That said, I still think it’s a top FTSE 100 dividend stock to consider. Its track record of consistent payouts and its deep roots in UK finance make it a cornerstone for many passive income portfolios.