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This top FTSE 100 dividend stock is up 20% in 2019. Here’s why it could have further to go

Shares in financial services group Legal & General (LSE: LGEN) have enjoyed a strong run in 2019 so far, rising more than 20%. Personally, I’m pretty happy with that performance, as the stock is actually the largest holding in my own dividend portfolio right now.

Yet analysing the investment case for LGEN, I think the stock could have plenty more upside from current levels. Here’s a look at four reasons I believe the stock can keep rising.

FY2018 results

For starters, recent full-year results released on 6 March were decent, with the company advising that it is positioned well for future growth. For FY2018, operating profit increased 10% and earnings per share rose 7% – a solid performance given the political uncertainty and equity market weakness experienced last year. This demonstrates the resilience of Legal & General’s diverse business model which is linked to a number of growth drivers including the world’s ageing population.

The group also said that it remains confident that it can continue its momentum into 2019 (as it believes that its growth drivers are largely unaffected by on-going political and economic uncertainty) and stated that it’s on track to deliver earnings per share compound annual growth of 10% up to 2020. If the company can deliver on this earnings guidance, the share price should keep rising.

7% dividend increase

What I also liked about the recent full-year results was that the group hiked its dividend payout by a healthy 7% to 16.42p per share. To my mind, that’s a statement of confidence from management in itself. That marks nine consecutive dividend increases from the group now – an excellent achievement – and analysts expect further hikes for FY2019 and FY2020. Again, if the company can deliver on this dividend growth, it should place upward pressure on the share price.

Broker upgrades

Another reason I think the outlook for the stock remains favourable is that brokers are upgrading their earnings forecasts for this year and next. For example, in the last month, brokers have upgraded their EPS estimates for FY2020 by nearly 2.5%. That’s a positive development as upgrades can also help drive a company’s share price higher.

Valuation and dividend yield

Finally, the stock currently looks too cheap, in my view, despite its 20% rise this year. For example, with analysts expecting earnings of 32.1p per share for FY2019, the shares currently trade on a forward-looking P/E of just 8.7. I see that as a bargain valuation.

Furthermore, with analysts expecting the group to pay out 17.5p per share in dividends for FY2019, the stock currently offers up a prospective dividend yield of 6.3%. To my mind, that looks overly generous.

So overall, looking at Legal & General’s recent results and valuation, I see a lot of appeal in the stock right now. I continue to rate the stock as one of the most attractive dividend stocks in the FTSE 100 index.

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Edward Sheldon owns shares in Legal & General Group. 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.