Occasionally, when I hear of investors’ dividend hauls, I feel a familiar pang. Am I overthinking things while they’re locking in an outsized second income?

Lately, two dividend shares have caught my attention in this regard: Legal & General (LSE:LGEN) and M&G (LSE:MNG). But do they offer genuine value, or simply an eye-catching yield?

Analytics/data provider FTSE Russell’s latest factsheets (dated 16 October) put their trailing yields at 7.33% and 6.56%, respectively. These measure dividends paid over the previous 12 months against the share price. M&G also paid its latest interim dividend that day.

Using those yields, £10,000 split equally between them equates to around £695 annually before tax and costs (assuming the underlying payouts remain unchanged). That’s just an illustration, but it gives a good ballpark figure.

So the income appeal’s obvious. But a big payout doesn’t tell me whether the business behind it is worth today’s price.

Where growth matters

As a Legal & General shareholder, I clearly see merit in the business and its latest half-year results back that. Core operating earnings per share grew 11% in the six months to June. Meanwhile, its June-end Solvency II coverage ratio was 201%, above its 160%-190% operating target range. This measures available regulatory capital against required capital.

That’s reassuring, but isn’t proof that future dividends are affordable. Earnings, capital generation and competing demands on the business still matter.

The interim dividend increased 2% to 6.24p and guidance is for 2% annual dividend growth from 2025 to 2027.

That starting income interests me, but modest growth means inflation could erode its spending power. Moreover, any investment losses could easily weaken its capital position, risking a dividend cut.

For me, the question isn’t whether the yield looks generous, it’s whether improving earnings can support dependable, growing income without stretching the business.

A cheaper-looking alternative?

M&G’s 6.56% trailing yield sits well below its 9.17% five-year median in its factsheet. L&G’s equivalent comparison’s 7.33% against 8.11%.

Today’s buyers are therefore accepting lower yields than those historical medians. That doesn’t prove either share is expensive as historical yields aren’t fair-value estimates.

M&G’s September half-year results showed adjusted operating profit before tax rising 15% to £435m. However, operating capital generation fell to £372m from £408m, mainly reflecting changes in capital requirements.

Its interim dividend increased to 6.8p from 6.7p. The progressive dividend policy suggests an intention to increase payouts, not a guarantee.

There’s also a clear risk. Weaker markets or client withdrawals could squeeze asset-management fee income. So the lower yield needs support from the business, not just optimism.

The bottom line

When evaluating a high-yielding dividend stock, always ask three questions:

• Is the starting income attractive?
• Can the business sustain and grow its payout?
• Does the purchase price compensate for the risks?

In this case, I think both companies deserve further investigation. But just because they offer yields over 6.5%, doesn’t automatically earn them a place in a second income portfolio.

My existing L&G shares are no exception — I’ll hold for now, but sustainable growth and a sensible valuation determine whether I maintain that status.

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Mark Hartley owns shares in Legal & General.