Monster dividend payers Legal & General Group plc and Plus500 Ltd still look cheap

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Legal & General

Dividend investing might lack the thrills and spills usually reserved for high growth shares but history shows it to be a remarkably effective way of growing serious wealth over the long term, as long as the majority of payouts are reinvested. Here are two companies that I think would make excellent picks for any dividend-focused portfolio, even after recent share price surges.

Solid performer

While payout increases over the next few years aren't predicted to match some of the double-digit hikes witnessed over the last five, insurer and fund manager Legal & General(LSE: LGEN) remains a great option, offering a chunky 5.6% yield in 2017.  

The company's recent H1 report made reference to its strong financial performance so far this year. Pre-tax profit soared 41% to £1.2bn with earnings per share rising 41% to just under 16p. A return on equity of 27% was achieved over the reporting period.

Commenting on results, CEO Nigel Wilson reflected that the business was successfully replicating its UK model in the US where it had experienced "increasing customer acceptance and an ever-improving financial performance". He also spoke of Legal & General's resilient nature in the face of many uncertainties, highlighting how its solid balance sheet and increasing access to opportunities around the world should allow it to continue delivering earnings growth.

Despite rising over a third in value over the last year, shares in the £16bn cap still look a decent buy at under 12 times forecast earnings. They won't shoot the lights out but, for dividend investors, that's surely not the point.

A worthy addition

Those brave/fortunate enough to have invested in Contracts for Difference (CFD) provider Plus500(LSE: PLUS) in January will have enjoyed a stellar run over the last eight months. Priced at 350p back then on fears surrounding the introduction of new regulations to the industry, the shares now change hands for 150% more. The fact that recent interim results were slightly ahead of expectations has only served to further boost positive sentiment towards the stock.

To recap, Plus generated 19% more revenue ($188m) in the six months to the end of June than it did over the same period in 2016, thanks to increased contributions from the trading of new financial instruments and new exchanges. The company's mobile proposition now accounts for almost three-quarters of total revenues.

Over the reporting period, the £1bn cap business increased the number of active customers by 8% to just over 112,000 and the number of new customers by 43% to almost 32,000. As a result of all this, earnings before interest, tax, depreciation, and amortisation doubled to $119m with net profit climbing 104% to almost $91m.

With regard to the aforementioned plan to offer more protection to customers from poor industry practices, Plus stated that it had already made the adjustments required to "fully comply with all recent regulatory changes" in Cyprus and France. As such, I think it unlikely that the Financial Conduct Authority's forthcoming conclusions will be sufficient to break current momentum in the UK. 

Looking forward, Plus500 stated that Q3 trading had "continued to be strong" and that it was on track to significantly exceed prior market expectations for the full year.

And the dividends? Despite recent performance, shares still come with a forecast 6% yield, covered 1.8 times by profits. Yours for just nine times forward earnings, Plus500 surely warrants attention.

Make a million

Growing your wealth over time need not involve anything more complex than reinvesting any dividend income you receive. It's a simple strategy but one that yields real results.

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Paul Summers has no position in any 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.