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Legal & General Group plc and SSE plc are stunning dividend bargains for your Isa

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Insurance giant Legal & General Group (LSE: LGEN) has been one of my favoured stock picks for years, but even it could not sidestep the recent stock market sell-off. The company’s share price fell around 9% peak to trough in February, which now looks like a fabulous buying opportunity.

A Legal matter

You may still have an opportunity, with today’s 260p still 10% below L&G’s 52-week high of 288p. The stock looks a bargain, currently trading at a forecast valuation of just 10.6 times earnings. Better still, it offers one of the most generous dividends on the FTSE 100 with a forecast yield of 6.1%, covered 1.5 times.

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L&G is renowned as a pioneer of low-cost tracker funds, long before ETFs dominated. It has kept pace with the low-cost fund revolution, the Legal & General UK 100 Index Trust, for example, has ongoing charges of just 0.1%. Management foresight should be applauded.

General growth

In December, the board reported accelerating momentum across its businesses and predicted a record year for profits and earnings. It still remains vulnerable to market volatility, just like any other asset manager and this year could be bumpy, despite the swift market recovery. City analysts are forecasting a 5% drop in earnings per share (EPS), although followed by a 7% recovery in 2019.

My Foolish colleague Royston Wilde is another fan of this stock, pointing out that L&G has strong growth possibilities in the US as well as the UK, and is nicely tapping into the trend for ageing Western demographics. Further market volatility can never be ruled out, but if you plan to buy and hold for the long-term, as I would advise, you can ride through that.

Power down

If you want to match L&G with another dividend stock, power giant SSE (LSE: SSE) has an even more electric yield. It is currently forecast to supply dividend income of a mighty 7.8%, covered 1.3 times. That is around 16 times the average easy access savings account, although I have a word of warning here. One reason the dividend is so high is that its share price has performed poorly lately, it trades 10% lower than a year ago, and is also in the red measured over five years, down 15%. No dividend is guaranteed, there is always the danger this one could be cut.

The utility sector has been hit across the board, for example British Gas owner Centrica is down 37% over one year and 59% over five, with the latest blow being the government’s proposed energy price cap on expensive standard variable tariffs. As Rupert Hargreaves points out, SSE is particularly exposed with 71% of its customers on this type of plan.

Hit for Six

The big six are also facing rising competition from smaller companies, with comparison sites featuring as many as 65 different suppliers.

SSE is therefore riskier than it should be, especially with City analysts forecasting an 8% drop in EPS in the year to 31 March 2018. However, they anticipate growth of 6% in 2019. This could make today a good entry point for bargain seekers, with the share trading at a forecast valuation of just 10.1 times earnings, although Legal & General looks the surer bet.

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Harvey Jones 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.

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