Legal & General's Share Buyback and Strategic Dividend Policy: A Deep Dive into Shareholder Returns and Capital Efficiency

Legal & General Group Plc (LGEN) has emerged as a standout player in the UK financial services sector, leveraging an aggressive share buyback program and a disciplined dividend policy to enhance shareholder returns while maintaining long-term capital efficiency. With a £1.5 billion buyback initiative—comprising £1 billion tied to the sale of its US protection business and an additional £500 million approved in 2025—the insurer is signaling confidence in its capital structure and strategic direction. This analysis evaluates the effectiveness of these measures, their impact on earnings per share (EPS) and return on equity (ROE), and how they stack up against industry benchmarks.

Share Buybacks: Fueling EPS Accretion and Shareholder Value

Legal & General’s recent share repurchases exemplify its commitment to returning capital to shareholders. On September 1, 2025, the company repurchased 1,000,000 ordinary shares at an average price of 245.36 pence per share, reducing its total issued shares to 5,702,550,487 [2]. A follow-up transaction on September 2, 2025, saw an additional 5,948,320 shares repurchased at 237.29 pence, further shrinking the share count to 5,696,705,949 [1]. These actions are part of a broader £1.5 billion buyback program, with 90% of the £500 million tranche already executed by early August 2025 [3].

The strategic rationale is clear: by retiring shares, Legal & General is directly boosting EPS. Core operating earnings per share (EPS) rose 9% in the first half of 2025, driven by cost discipline and strategic growth in institutional retirement and asset management [4]. The company forecasts a 6-9% compound annual growth rate (CAGR) in core operating EPS from 2024 to 2027, a target that hinges on sustained buyback activity and operational efficiency [5].

Dividend Policy: Balancing Returns and Growth

Complementing the buyback program is Legal & General’s dividend strategy. The board has committed to a 5% dividend increase for 2024, followed by 2% annual growth through 2027 [6]. This approach balances immediate shareholder returns with long-term reinvestment, ensuring that capital is allocated to both rewarding investors and funding strategic initiatives. The 2025 half-year results highlight the feasibility of this plan, with core operating profit rising 6% to £1.616 billion and a Solvency II coverage ratio of 217%, underscoring robust capital resilience [7].

Capital Efficiency and ROE: Outperforming Peers

Legal & General’s capital efficiency is perhaps best illustrated by its ROE. For the quarter ending June 2025, the company reported an ROE of 21.21%, calculated using a net income of £632 million and average equity of £2,980 million [8]. This figure far exceeds the 2025 industry average of 6.9% for challenger and specialist banks, with digital banks trailing at 7.8% [9]. Over the past 13 years, Legal & General’s ROE has fluctuated between 4.56% and 26.53%, but the current trajectory suggests a return to high-efficiency operations post-2024 restructuring [10].

The company’s ability to generate strong ROE stems from its focus on core businesses—Institutional Retirement, Asset Management, and UK Retail—and its disciplined disposal of non-core assets, such as the US protection business. Proceeds from these sales are being redeployed into growth opportunities, amplifying capital efficiency [11].

Industry Context and Strategic Risks

While Legal & General’s metrics are impressive, broader industry trends warrant caution. The UK financial services sector faces headwinds, including higher operating costs and regulatory shifts under the Financial Services Growth and Competitiveness Strategy [12]. Challenger banks, for instance, are grappling with an average ROE decline to 6.9% in 2025, pressured by rising book values and operational expenses [13]. Legal & General’s focus on capital optimization and digital transformation positions it to outperform, but risks such as regulatory divergence and macroeconomic volatility could test its resilience [14].

Conclusion: A Model of Shareholder-Centric Strategy

Legal & General’s dual focus on share buybacks and dividends has created a compelling value proposition for investors. By reducing share counts, boosting EPS, and maintaining a high ROE, the company is delivering tangible returns while preserving capital strength. Its strategic divestments and reinvestment in core growth areas further enhance long-term efficiency. However, the sustainability of these gains will depend on navigating macroeconomic risks and regulatory shifts—a challenge the company appears well-equipped to handle given its current financial position. For shareholders, the combination of immediate returns and strategic reinvestment makes Legal & General a standout case study in capital-efficient growth.

Source:
[1] Transaction in Own Shares | Company Announcement [https://www.investegate.co.uk/announcement/rns/legal-general-group--lgen/transaction-in-own-shares/9085448]
[2] Transaction in Own Shares | Company Announcement [https://www.investegate.co.uk/announcement/rns/legal-general-group--lgen/transaction-in-own-shares/9083485]
[3] 2025 Half Year Results: Core operating EPS up 9% as strategic momentum builds [https://group.legalandgeneral.com/en/newsroom/press-releases/2025-half-year-results-core-operating-eps-up-9-as-strategic-momentum-builds]
[4] Legal & General Grows Core EPS By 9% As Strategic Focus Strengthens [https://www.directorstalkinterviews.com/legal-general-grows-core-eps-by-9-as-strategic-focus-strengthens/4121210981]
[5] Legal & General Targets 2025 Core Operating EPS Growth Between 6-9 [https://www.nasdaq.com/articles/legal-general-targets-2025-core-operating-eps-growth-between-6-9]
[6] Sustainable Growth, Sharper Focus, Enhanced Returns [https://group.legalandgeneral.com/en/newsroom/press-releases/sustainable-growth-sharper-focus-enhanced-returns]
[7] Legal & General Grp - L&G Full Year Results 2024 Part 1 [https://www.research-tree.com/newsfeed/article/legal-general-grp-l-g-full-year-results-2024-part-1-2764250]
[8] Legal & General Group (LSE:LGEN) ROE % [https://www.gurufocus.com/term/ROE/LSE:LGEN]
[9] How the Trade War is Reshaping the Global Economy [https://www.ey.com/en_uk/insights/banking-capital-markets/how-challenger-and-specialist-banks-can-grow-amid-headwinds]
[10] Legal & General: results in line, buybacks ramping up [https://www.hl.co.uk/shares/share-research/legal-general-results-in-line-buybacks-ramping-up]
[11] Legal & General lifts dividend, plans share buyback as profit climbs [https://www.morningstar.co.uk/uk/news/AN_1741770059272528400/legal--general-lifts-dividend-plans-share-buyback-as-profit-climbs.aspx]
[12] Financial Services Growth and Competitiveness Strategy [https://www.gov.uk/government/calls-for-evidence/financial-services-growth-and-competitiveness-strategy/outcome/financial-services-growth-and-competitiveness-strategy-overview]
[13] Shaping financial services - the key trends, opportunities and risks for 2025 [https://www.pwc.co.uk/industries/financial-services/understanding-regulatory-developments/shaping-financial-services-the-key-trends-opportunities-and-risks-for-2025.html]
[14] Financial Stability Report - July 2025 [https://www.bankofengland.co.uk/financial-stability-report/2025/july-2025]