3 colossal income stocks: Vodafone Group plc, Standard Life plc and Legal & General Group plc

In the last five years Standard Life (LSE: SL) has increased dividends per share by around 43%. That works out as an annualised rise of almost 7.4% during the period, which is clearly well ahead of inflation. Despite such a strong rise in shareholder payouts, Standard Life’s dividends are still covered 1.4 times by profit, which indicates that they’re not only sustainable at their present level, but that there’s scope for further above-average rises over the medium-to-long term.

Furthermore, with Standard Life expected to increase its bottom line by 11% in the next financial year, its dividend outlook is very healthy. And with its shares trading on a price-to-earnings (P/E) ratio of 12.5, there seems to be significant scope for an upward rerating over the medium-to-long term. As such, Standard Life’s yield of 6% may grab the headlines, but it appears to be a very appealing long-term income play with significant dividend growth and capital gain potential.

Think long term

Similarly, Legal & General (LSE: LGEN) has a relatively high yield, with it standing at just over 6% at the present time. For many income investors, this will be sufficient to merit purchase right now, but Legal & General has the potential to not only maintain dividends but to grow them over the medium term too.

In fact, Legal & General is expected to record a rise in shareholder payouts of around 14% over the next two financial years. With inflation standing at near-zero, this could provide a huge real-terms rise in investors’ incomes. And with dividends being covered 1.4 times by profit, Legal & General appears to have a sustainable shareholder payout policy.

Although Legal & General’s bottom-line growth rate of 8% this year and 7% next year is roughly in line with that of the wider index, its P/E ratio of 11.7 indicates that it offers a very wide margin of safety. Certainly, investor sentiment may be somewhat weak as evidenced by its 12% fall since the turn of the year, but for long-term investors it seems to be a stunning buy.

Prepare for growth?

Meanwhile, Vodafone’s (LSE: VOD) status as a relatively mundane dividend stock could be coming to an end. That’s because after a number of challenging years the telecoms company is expected to record a 24% rise in earnings in the current year, followed by a further rise in net profit of 19% next year. As such, Vodafone appears to offer significant growth appeal, as well as a top-notch yield of 4.9%.

Clearly, improving financial performance is good news for Vodafone’s dividend prospects. And with it having made a major investment in its European network as well as pursuing M&A activity, Vodafone seems to be in a strong position through which to increase dividends in future. Furthermore, with Vodafone diversifying its product offering, its financial performance could improve yet further and allow the company to raise dividends at a brisk pace over the long run.

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Peter Stephens owns shares of Legal & General Group, Standard Life, and Vodafone. 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.