Why Legal & General Group plc is set to be a millionaire-maker stock

Royston Wild explains why Legal & General (LON: LGEN) could make you unimaginably rich.

| 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.

I am a big fan of Legal & General Group (LSE: LGEN). I believe that its resilience in the UK, and ambitious expansion into the US, bodes extremely well for brilliant earnings and dividend growth in the years ahead. Its last trading statement showed group pre-tax profits booming 43% in the six months to June. 

Yet those expecting a period of strong and sustained profits progress in the near term may be disappointed as Legal & General’s long record of double-digit earnings expansion is predicted to stutter by City analysts. The FTSE 100 star is anticipated to follow a predicted 15% rise in 2017 with a 3% reversal in 2018.

But on the bright side, current forecasts make the insurer exceptional value, a forward P/E ratio of 10.5 times clocking in just above the bargain barometer of 10 times and under, while a corresponding PEG reading of 0.7 falls below the widely-regarded value watermark of 1.

And these figures leave plenty of share price upside should, as I expect, Legal & General get back to generating powerful profits growth further out.

Dynamite dividends

While these valuations are very appealing — at least in my opinion — it is in the dividend arena where Legal & General makes a particularly-big splash.

The company has pushed dividends up at a compound annual growth rate of 13.4% over the past five years. Athanks to its bright long-term earnings outlook and strong balance sheet (its Solvency II surplus boomed to £6.7bn as of June from £5.7bn six months earlier), the number crunchers are expecting further chunky growth.

Last year’s 14.35p per share reward is predicted to pound to 15.3p in 2017 and to 16.2p in 2018. As a consequence, yields for this year and next register at 5.7% and 6.1%, taking a forward average of 3.5% for the FTSE 100 to the cleaners.

Growth giant

I reckon Legal & General has what it takes to make investors very rich in the years ahead. And thanks to its own galloping progress at home and abroad, I reckon Fevertree Drinks (LSE: FEVR) could also prove a lucrative selection for long-term investors.

Indeed, like the Footsie-listed business, the mixers maker is also expected to spew out delicious dividend growth now and later. In 2017 a 9.7p per share reward is predicted which, if realised, would mark a stunning upgrade from last year’s 6.25p per share payout. And dividends are expected to rise to 10.1p in 2018.

I’m not surprised that many income chasers may want to give Fevertree a miss given that yields are still very low right now (these clock in at 0.5% for 2017 and 2018). But the company’s hot growth prospects convince me that yields should tear higher further down the line.

It said this month that “the mixer category is now the fastest growing category across the UK soft drinks sector with Fevertree responsible for 97% of the value growth in retail over the last 12 months.” And sales are also taking off further afield. Revenues in mainland Europe and the US for instance jumped 64% and 43% respectively in January-June.

City analysts expect the company to print an earnings advance of 60% in 2017 and 4% in 2018. So while it carries a toppy-looking forward P/E ratio of 52.8 times, the sunny outlook for global mixers market — allied with the bold steps the firm is making to improve its infrastructure and client relationships across the world — still makes it a very-appealing share.

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.

Royston Wild has no position in any of the 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

After crashing 45% in October, should I buy this FTSE 250 share for my Stocks and Shares ISA?

Roland Head explains why he’s tempted to add this risky FTSE 250 turnaround share to his Stocks and Shares ISA…

Read more »

Investing Articles

Could I use a stock market crash to turn £20k into half a mil in just over a decade?

A stock market crash might sound terrifying to some but it can also present a once-in-a-lifetime opportunity to accumulate generational…

Read more »

Investing Articles

Recently released: October’s small-cap stock recommendation [PREMIUM PICKS]

We believe the UK small-cap market offers a myriad of opportunities across a wide range of different businesses and industries.

Read more »

Investing Articles

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »

Investing Articles

2 of my favourite, cheap FTSE 100 growth shares this November!

These FTSE 100 growth shares could be great long-term picks to consider, reckons Royston Wild. At current prices he thinks…

Read more »

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »