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Why Lloyds Banking Group PLC, BAE Systems plc And Legal & General Group Plc Are Hot Growth And Income Picks

Today I am looking at three stocks carrying excellent earnings and dividend potential.

Lloyds Banking Group

Thanks to the fruits of a resurgent UK economy, not to mention the impact of massive divestments and cost-cutting, I believe Lloyds (LSE: LLOY) is a terrific bet for those seeking brilliant earnings and income growth. The Black Horse laid bare the effect of these factors when it announced in July that underlying profits had ticked 15% higher during January-June, to £4.38bn.

It is true that Lloyds’ de-risking efforts are likely to leave it trailing its industry rivals when it comes to delivering rip-roaring growth. But many would argue that a renewed focus on the High Street leaves it less exposed to earnings turbulence. So although the bottom line is expected to rise just 5% in 2015, this figure leaves Lloyds dealing on a P/E rating of just 9.2 times — any readout below 10 times is widely considered a steal.

And even though the cost of previous misconduct, and in particular the mis-selling of PPI, continues to hang over the business I believe recent restructuring and steadily-improving income levels should drive dividends higher in the coming years. This view is shared by the City, and a payment of 2.6p per share is pencilled in for 2015 alone, yielding a very-decent 3.3%.

BAE Systems

With weapons spending in the West back on the mend, I reckon BAE Systems (LSE: BA) should enjoy accelerating order intake in the years ahead, supported by an escalation in both the number and scale and conflicts affecting its traditional customers. The arms giant saw revenues advance 11% during the first six months of 2015, to £8.47bn, and I expect the London business to keep stacking up the contract wins thanks to its massive R&D investment.

On top of this, I feel certain BAE Systems’ growing reputation in emerging markets — the business also has hubs in Saudi Arabia, Australia and India — will keep its sales team busy in the long term. At present the company is expected to see earnings edge fractionally higher in 2015, although this would mark a substantial improvement from the 10% slide last year, and which leaves a P/E multiple of just 12.2 times.

And BAE Systems’ modest near-term earnings outlook is more than offset by the blockbuster dividends on offer, in my opinion. The number crunchers expect the munitions supplier to raise last year’s dividend of 20.5p per share to 20.8p in 2015, producing a market-beating yield of 4.4%.

Legal & General Group

Likewise, I reckon life insurance leviathan Legal & General (LSE: LGEN) is a great pick for ambitious investors thanks to its sprawling presence in established and emerging regions alike, not to mention its responsiveness to changing demographic and regulatory trends. These strengths helped to drive total under assets under management 12% higher in January-June, to £714.6bn, and consequently post-tax profit 8% higher to £547m.

Legal & General clearly has the right recipe for cooking up stunning sales growth, and the City expects the London firm to clock up another double-digit earnings rise in 2015, this time to the tune of 14%. Consequently the financial services play changes hands on an attractive P/E ratio of just 14.1 times.

And thanks to the company’s fantastic cash-generative qualities — net cash leapt 11% in January-June, to £624m — the City expects Legal & General’s dividends to continue surging higher. Indeed, last year’s reward of 11.25p per share is anticipated to rise to 13.3p in the current period, resulting in a monstrous yield of 5%.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.