Why I see more upside ahead for Legal & General Group plc

Legal & General Group plc (LON: LGEN) may be poised for further gains.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With the stock market trading near record highs, it’s become increasingly difficult to find reasonably priced dividend stocks to invest in. After strong recent gains, it’s unsurprising that many stocks now appear to be overvalued.

Thankfully, there are still some attractive dividend stocks available if you’re willing to look hard enough. And one FTSE 100 stock out there which seems to fit the bill is Legal & General (LSE: LGEN).

The investment and pension group’s fundamentals are attractive as demand for private pensions grows and the group’s capital position strengthens. As such, management is confident of sustaining 10% per annum earnings growth over the next four years.

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

Dividend growth

Dividends from the company have grown by a compound annual growth rate (CAGR) of 16% over the last three years, and its shares now boast a dividend yield of 5.4%. Looking ahead, City analysts expect annual dividends per share to grow by 7% over the next three years, which would give its shares a highly tempting prospective yield of 6.5% by 2019.

But are these expectations realistic? Probably. The company has delivered robust double-digit earnings growth year-after-year and dividend growth has historically been even faster. What’s more, cash generation has been rapidly improving, leading its Solvency II coverage ratio to rise to 186% in the first half of 2017, from 171% in December 2016.

And although Brexit uncertainty may weigh on its near-term outlook, I reckon its longer-term growth prospects remain intact because of the long-term structural and demographic growth drivers. As such, I believe its shares could prove to be a strong performer over the medium term.

Moreover, Legal & General shares are fairly valued, trading at just 10.6 times forward earnings.

Another great pick

Elsewhere, I think public transport operator National Express (LSE: NEX) is another great dividend growth pick.

National Express has an alluring earnings outlook, with the company forecast to post underlying earnings per share growth of 7% and 8% in 2017 and 2018, respectively. Valuations seem reasonable too, with the stock trading at just 12.2 times expected earnings in 2017.

And with the company having generated £81.8m in free cash flow in the first half of 2017 — a 24% increase on last year, the outlook for future dividend growth is tempting. At this rate, it’s set to generate more than double the cash needed to pay for its dividends, meaning there’s plenty of funds left over for future expansion. Shares in National Express currently yield 3.6%, but with City analysts expecting dividend growth of around 10% this year, its prospective dividend yield is forecast to rise to 3.9% by the end of the year.

Although challenging market conditions in its UK bus division continue to be a drag on near-term growth, the company’s other operations, rail and international coach, are performing well. The company earns roughly 80% of profits from abroad now, meaning it’s less exposed to the weaker UK transport sector than rivals Go-Ahead Group and Stagecoach Group — which are both set to see shrinking underlying earnings over the next two years.

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 30% in weeks, does the BAE Systems share price still offer value?

The BAE Systems share price has been on a tear over the past couple of months. This writer sees limited…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Hunting for shares to buy as the market trembles? Remember this!

After a choppy week in global stock markets, our writer goes back to basics in his hunt for bargain shares…

Read more »

Investing Articles

3 simple principles to help build wealth in an ISA

As a new tax year opens up new ISA allowances for many investors, our writer shares a trio of things…

Read more »

Investing Articles

US trade tariffs: what they could mean for UK shares like Ashtead, Compass Group, and Experian

US trade tariffs continue to rock global markets, and the UK is no exception. Our writer considers how a new…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Dividend Shares

The Trump slump has smashed these FTSE 100 shares!

After a rough week for US and UK shares, investors have been shaken. But now these FTSE 100 stocks have…

Read more »

Investing Articles

£10,000 invested in Rolls-Royce shares 5 years ago is now worth…

Rolls-Royce shares have been on fire since April 2020. Part of this is the result of pandemic restrictions lifting, but…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£10,000 invested in Tesla stock at its peak in 2024 is now worth…

Over the last few months, Tesla stock has lost nearly half its value. Here, Edward Sheldon explores a few takeaways…

Read more »

Investing Articles

Is the S&P 500 heading for an epic stock market crash?

Our writer shares his thoughts on a very crazy time for the S&P 500 and the wider stock market. How…

Read more »