3 Electric Income Stocks For 2016: National Grid plc, BAE Systems plc And Legal & General Group Plc

Today I’m looking at three hot dividend stars for your stocks portfolio.

Power up your portfolio

For those seeking reliable and chunky dividend growth year after year, the utilities sector has long proved a happy hunting ground. But the payout power of the country’s major electricity and water providers has come under scrutiny more recently as regulators run the rule over their profit margins, while electricity and gas providers are facing increasing pressure from independent suppliers.

Such problems don’t affect network operator National Grid (LSE: NG) however. Its vertically-integrated structure doesn’t leave it open to the same problems. Indeed, Ofgem’s cost targets have actually done the business a favour by stemming the flow of capital heading out of the door.

The essential nature of National Grid’s operations is expected to deliver earnings growth of 1% and 4% in the years to March 2016 and 2017, respectively. Consequently last year’s dividend of 42.87p per share is expected to rise to 43.7p in 2016, yielding 4.8%. And this reading leaps to 5% for next year thanks to a predicted 44.7p reward.

Defence play on the march

As arms budgets in the UK and US advance thanks to improving economic conditions, I reckon dividends over at BAE Systems (LSE: BA) should keep heading higher in the coming years.

The company’s position at the coalface of defence technology has made it a go-to supplier to Western governments, while its expertise across a variety of sub-segments (from providing army training to building submarines and tanks) gives BAE Systems terrific scope for sales growth.

And as the geopolitical landscape becomes more turbulent, I believe demand for BAE Systems’ products should continue to head higher. For 2015 the weapons specialist is expected to shell out a dividend of 20.8p per share, up from 20.5p last year and yielding a handsome 4.1%. An expected payment of 21.5p nudges the yield to 4.2%, and I expect dividends to continue growing further out, along with earnings.

Insurer heading higher

Life insurance giant Legal & General (LSE: LGEN) has seen dividends shoot comfortably higher in recent years, underpinned by brilliant double-digit earnings expansion and surging cash flows.

With group-wide restructuring still bolstering the firm’s capital pile, and Legal & General’s products still flying off the shelves, I fully expect this trend to continue. The company has invested vast sums into developing its insurance range, while initiatives to expand its global wingspan are also paying off handsomely. Indeed, total assets under management leapt 8% between January and September to £717bn.

In light of an expected 14% earnings advance in 2015, Legal & General is expected to lift the full-year dividend to 13.4p per share from 11.25p last year, creating an exceptional 5% yield. And the dividend in 2016 is anticipated to rise to 14.3p thanks to predictions of a 7% earnings bounce, yielding a stonking 5.4%.

So if the stocks mentioned above have whetted your appetite for even more brilliant payout picks, I strongly recommend you check out this special Fool report that identifies what I believe is one of the hottest London-quoted dividend stocks money can buy.

Our BRAND NEW "A Top Income Share From The Motley Fool" report looks at a hidden FTSE 250 star generating breakneck sales growth across the continent, and whose ambitious expansion plans should power dividends higher in the years ahead, according to the Fool's crack team of analysts.

Click here to enjoy this exclusive 'wealth report' - it's 100% free and comes with no obligation.

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.