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

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.

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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.