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£1k to invest? I think these FTSE 100 dividend stocks could double your money

There are a handful of FTSE 100 stocks I think have the potential to double investors’ money over the next few years. One of these is the owner of British Airways, International Consolidated Airlines (LSE: IAG).

Undervalued

Shares in this international airlines group are currently dealing at a forward P/E ratio of 5.7. Many of its peers command a valuation of more than double this level. So, why does the market hate the business so much?

It seems to me there are two reasons why investors are giving IAG a wide berth. First of all, there’s a lot of uncertainty about how the company will survive in a post-Brexit Britain and negotiate the additional layers of regulation introduced as part of the divorce.

Secondly, IAG has been hit by a wave of strikes and IT meltdowns at its flagship British Airways brand. Not only have these issues cost the business hundreds of millions of pounds, but they’ve also damaged the brand’s reputation. Analysts are worried these problems could have a more significant long-term impact on the group.

Still, while these are valid concerns, I think the uncertainties are more than reflected in the stock’s current valuation. What’s more, IAG has a good track record of dealing with problems across the business, and its management is highly competent. Indeed, despite all of the issues the group has faced over the past six years, including high fuel costs, economic uncertainty and the increasing competition, net profit has increased more than 1,700% since 2013.

It’s this growth potential, combined with IAG’s 50% discount to the rest of the sector, that makes me believe the stock could double your money over the next few years.

Bigger is better

I also think shares in Legal & General (LSE: LGEN) could yield a total return of more than 100% over the next few years. For a start, the stock currently supports a dividend yield of 6.2% at the time of writing. Shares in the financial services giant are also trading at a forward P/E of 8.9, around 40% below the market average.

Then there’s L&G’s growth rate to consider. Over the past six years, the company’s earnings per share have grown at a compound annual rate of 14%.

I think it’s a bit much to expect this double-digit growth rate to continue. Instead, I reckon the company can produce earnings growth over the long term of around 4% to 5% per annum. When combined with Legal’s current 6.2% dividend yield, this gives a total annual potential return of 10-11% per annum, enough to double investors’ money every 7.2-6.5 years, according to my figures.

As one of the country’s largest financial services firms, with around £1trn in assets under management, I think investors can trust this return thanks to Legal’s size and the fact it dominates the UK pension market. As long as consumers require pensions, it’ll remain a FTSE 100 income and growth champion, in my opinion.

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Rupert Hargreaves owns no share 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.