Legal & General (LSE: LGEN) shares have been a stalwart of my investment portfolio for decades, and I'm here to tell you why they remain my top pick for a high-income retirement portfolio. In my opinion, the key to a successful investment strategy is finding a company that consistently delivers strong earnings growth and prioritizes shareholder returns. And that's exactly what Legal & General has done.
One of the most compelling reasons to invest in Legal & General is its commitment to consistently high dividend yields. Since the 2007/2008 financial crisis, the company has formalised a 'progressive dividend policy' that ensures payouts rise at least in line with earnings per share, without being reduced even during earnings declines. This policy has been a game-changer, with dividends rising 18% in the past five years alone, from 18.45p in 2021 to 21.79p in 2025. At the current price of £2.48, this translates to an impressive 8.8% dividend yield, almost triple that of the FTSE 100's 3.1%.
What makes this particularly fascinating is that Legal & General's dividend growth is underpinned by a forecast of strong earnings growth. Analysts predict that earnings will grow by an average of 7% annually until 2028, with dividends rising accordingly. This means that investors can expect to see their dividend income grow over time, providing a steady stream of income for retirement.
From my perspective, the power of compound returns cannot be overstated. Reinvesting dividends allows investors to benefit from the 'miracle of compound returns,' where earnings grow exponentially over time. For example, my £20,000 holding in Legal & General would generate an annual income of £31,196 after 30 years, based on the average 9.4% forecast yield. This is a testament to the long-term value of reinvesting dividends.
However, it's important to acknowledge the risks that Legal & General faces. A sustained surge in the cost-of-living crisis could cause customers to close insurance or investment accounts, putting pressure on profit margins. Additionally, the company operates in a highly competitive sector, which could impact its ability to maintain strong earnings growth. But, in my opinion, these risks are outweighed by the company's commitment to shareholder returns and its strong earnings growth forecast.
In conclusion, Legal & General shares are a top pick for a high-income retirement portfolio due to their consistently high dividend yields and strong earnings growth forecast. The company's commitment to rewarding shareholders through hefty dividends, combined with the power of compound returns, makes it an attractive investment for those looking to grow their wealth over time. Personally, I will be buying more of the shares and urging my son to do the same, as I believe it's a smart move for anyone looking to secure a comfortable retirement.
