FTSE 100 dividend shares that can grow by 100% are few and far between. In fact, I could probably count the potential candidates on the fingers of one hand. Today I’ll look at what I think is the best possible option to take your blue-chip portfolio to the next level in 2020.
Legal & General (LSE:LGEN) has been the outstanding star stock for me since I picked up as many shares as I could afford in 2019. I’d had my eye on the life insurer for a long time before I pulled the trigger — I was waiting for the right time to buy. In hindsight, sitting on my hands and waiting was just costing me time and money and I should have bought in sooner.
As soon as I have any money to drip feed into my Stocks and Shares ISA, my first thought is to increase my LGEN holdings. If I was looking to invest my first £5,000 or my last, this FTSE 100 dividend share would still be at the top of my list.
I believe LGEN will continue to pay me a cast-iron dividend of 5% to 6% for the rest of my natural life. The reason? It dominates the UK pensions market and it has the trust of some of the world’s largest multinationals, continuing to bring huge clients to the table.
At the time of writing, the share price offers a 5.3% dividend payment on a cheap-looking trailing price to earnings ratio of 10.2. Factor in next year’s expected growth and that P/E ratio drops to an even more attractive 9 times earnings.
Chief executive Nigel Wilson noted in a November 2019 trading update that all five LGEN divisions continued to produce solid operating performance: LGRI, its institutional retirement arm, is now in exclusive negotiations for a pension risk transfer pipeline of £3bn. LGRR, the retail retirement division, had sold £829m of annuities by 31 October 2019, up 34%, while investment management business LGIM increased its assets under management to £1.2trn, up £200m since the 2018 full-year results.
I agree with Wilson’s assessment that the business “continues to go from strength to strength“, considering that solvency is ever improving, growing from 171% to 176% at last count. “We remain disciplined in our deployment of capital,” Wilson added, “and our balance sheet and net cash flow are strong.”
City analysts expect underlying earnings per share to grow by 6% in 2020, and 8% a year until 2022, so adding the current 5.3% dividend gives investors a potential return of between 11% and 12% a year for the medium term.
Assuming the growth rate remains consistent, which I believe it will for the reasons highlighted above, that would double your money in about six-and-a-half years. A decent outline calculation for this equation, by the way, is to use the Rule of 72.
Assuming your money compounds annually, so any dividend you receive is reinvested, all you have to do to calculate how long it will take to double your money is to divide 72 by the interest rate your investment will be earning.
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Tom Rodgers owns shares in Legal & General. 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.