This top FTSE 100 dividend stock is up 20% in 2019. Here’s why it could have further to go

This FTSE 100 (INDEXFTSE: UKX) stock currently yields 6.3% and Edward Sheldon is a fan.

| 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.

Shares in financial services group Legal & General (LSE: LGEN) have enjoyed a strong run in 2019 so far, rising more than 20%. Personally, I’m pretty happy with that performance, as the stock is actually the largest holding in my own dividend portfolio right now.

Yet analysing the investment case for LGEN, I think the stock could have plenty more upside from current levels. Here’s a look at four reasons I believe the stock can keep rising.

FY2018 results

For starters, recent full-year results released on 6 March were decent, with the company advising that it is positioned well for future growth. For FY2018, operating profit increased 10% and earnings per share rose 7% – a solid performance given the political uncertainty and equity market weakness experienced last year. This demonstrates the resilience of Legal & General’s diverse business model which is linked to a number of growth drivers including the world’s ageing population.

The group also said that it remains confident that it can continue its momentum into 2019 (as it believes that its growth drivers are largely unaffected by on-going political and economic uncertainty) and stated that it’s on track to deliver earnings per share compound annual growth of 10% up to 2020. If the company can deliver on this earnings guidance, the share price should keep rising.

7% dividend increase

What I also liked about the recent full-year results was that the group hiked its dividend payout by a healthy 7% to 16.42p per share. To my mind, that’s a statement of confidence from management in itself. That marks nine consecutive dividend increases from the group now – an excellent achievement – and analysts expect further hikes for FY2019 and FY2020. Again, if the company can deliver on this dividend growth, it should place upward pressure on the share price.

Broker upgrades

Another reason I think the outlook for the stock remains favourable is that brokers are upgrading their earnings forecasts for this year and next. For example, in the last month, brokers have upgraded their EPS estimates for FY2020 by nearly 2.5%. That’s a positive development as upgrades can also help drive a company’s share price higher.

Valuation and dividend yield

Finally, the stock currently looks too cheap, in my view, despite its 20% rise this year. For example, with analysts expecting earnings of 32.1p per share for FY2019, the shares currently trade on a forward-looking P/E of just 8.7. I see that as a bargain valuation.

Furthermore, with analysts expecting the group to pay out 17.5p per share in dividends for FY2019, the stock currently offers up a prospective dividend yield of 6.3%. To my mind, that looks overly generous.

So overall, looking at Legal & General’s recent results and valuation, I see a lot of appeal in the stock right now. I continue to rate the stock as one of the most attractive dividend stocks in the FTSE 100 index.

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.

Edward Sheldon owns shares in Legal & General Group. 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

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

£20,000 in an ISA? Here’s how I’d aim to make £1,250 a month in passive income

Our writer thinks one rare FTSE 100 stock could help drive an ISA portfolio higher, resulting in a sizeable passive…

Read more »

Black father holding daughter in a field of cows
Investing Articles

£25k of savings? Consider aiming for a £1k+ monthly passive income via this strategy

With a long-term mindset, investors could target a four-figure monthly passive income by investing £25k in low-volatility blue-chip stocks.

Read more »

Investing Articles

The Rolls-Royce share price hit new highs in November. What next?

November has been another record-breaking month for the Rolls-Royce share price. And the outlook for 2025 still looks bright.

Read more »

Investing Articles

Here’s the growth forecast for Sage Group shares to 2026!

Sage Group shares have rocketed following the tech firm's stunning third-quarter update. Is now the time to consider buying in?

Read more »

Investing Articles

10%+ dividend growth! 2 FTSE 250 shares tipped to turbocharge dividends

These FTSE 250 income shares look in great shape to grow their dividends by double-digit percentages, says our writer Royston…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

Would it be madness to buy this FTSE stock smashed by Donald Trump’s team picks?

Ben McPoland takes a look at one FTSE share inside his portfolio that has been battered lately due to a…

Read more »

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »