UK investors sure do love their dividend stocks. John D Rockefeller could have been speaking for them when he said: “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in”.

Judging by AJ Bell’s latest customer data, that love of dividends is still alive and well. Because the list of the top buys over the past week is dominated by the likes of Legal & General (LSE:LGEN), HSBC, Rio Tinto, and 6%-yielding Aberdeen. 

The most popular of these? Legal & General by a long shot. AJ Bell’s data shows that this FTSE 100 stock was bought 10 times more than any other in the past week –  and 15 times more than SpaceX!  

Now, I suspect some of this buying activity was related to dividend reinvestment. On 25 September, the insurer paid an interim dividend of 6.24p, cash which many AJ Bell customers will have automatically reinvested to buy more shares. 

Still, they’re obviously bullish on this FTSE 100 stock. So what’s special about it? 

Index-leading yield

The most obvious attraction is Legal & General’s colossal dividend yield. For FY26, analysts expect the company to dish out 22.2p per share. This translates into a 7.66% yield, which obviously draws in income-hungry investors, much like bees round honey. 

There are other positives, including a record £1.2bn share buyback programme, of which £450m had been completed by the end of June. CEO António Simões is also in the process of expanding the firm’s capital-light asset management and retail divisions to improve financial performance. 

Looking ahead, Legal & General is well positioned to capture a fair bit of the global pension risk transfer (PRT) market. That’s where companies’ pension schemes offload liabilities to insurers. By the end of July, the firm had completed £5.7bn of global PRT transactions for the year.

We are making good progress in becoming a simpler, more focused L&G. Core operating profit grew 7%, core operating EPS increased 11%…The highlight of the first half was the performance in Asset Management, with fee-related earnings increasing 37%.

António Simões

Reason to be cautious

Unfortunately, L&G’s eye-catching dividend yield is partly a reflection of poor long-term share price performance. According to AJ Bell, the five-year return (including dividends) is 6.8% versus 12.1% for the FTSE 100. The 10-year annualised return is better, at 8%, but that still just trails the FTSE 100’s 8.2%. 

Recent performance has been better, with a total return of 30.3% over the past 12 months, far ahead of the Footsie’s 14%. But I still find the longer-term return disappointing. 

What about the next 12 months? Unfortunately, City analysts aren’t bullish, with the average price target 5.6% lower at 271p. Ten out of 15 rate the stock a Sell. 

One of these bearish brokers is Citi, which just gave Legal & General a 248p price target. It’s worried that competition in the UK PRT market is squeezing margins and the capital needed to underwrite new business remains high. 

While the dividend is not in any immediate danger, this tension between maintaining the chunky payout and funding long-term growth means the share price may well remain grounded. 

For investors solely interested in income, the stock’s hard to ignore. But I sold my shares in September because I see better dividend growth opportunities elsewhere for my portfolio. 

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Ben McPoland owns shares in HSBC and SpaceX.