Investing is a long-term game. Too many investors fixate on short-term share price growth when income is where themoneyis. If you reinvestyourdividends they will account for three-quarters of your growth over the longer run. So the earlier you buy and the longer you hold, the better. Here are three dividend payers that could make you seriously rich, if you give them time.
BP
Oil giant BP (LSE: BP) currently trades on a stonking yield of 6.5%, an astonishing 26 times current base rate. The big worryis that cover is well intonegative territoryat -0.9, which mean the firm isnt generating enough cash to cover it, and is funding it with debtinstead.Most investorsseemrelaxed about this. The share price is up 24% over the past year, which hardly suggests investors are running for cover. This is partly dueto the Trump reflationplay, and partly due to recentOPEC and non-OPEC production cuts.
Nobodycan say for sure if theyield will hold. After all the fuss about recent production cuts, Brent crude is only hovering around $55 a barrel. BPs 2017 Energy Outlook warns that energy resources are abundant, suggesting that todays lower for longer oil environment willendure. However, forecast earnings per share (EPS) growth of 145% this calendar year should provide some comfort as cost-cutting pays off.
GlaxoSmithKline
For many investors, pharmaceutical giant GlaxoSmithKline (LSE: GSK)is the ultimate income machine, with a yieldthat hashovered between5% and 6% for as long as I can remember. Today it pays5.3%, although cover is just 0.9. Worryingly, share price performance has been pretty erratic, with the stock up less than 6% over the last five years. In fact, it tradesjust 10% higher than it did a decade ago.
Glaxohas been hit by several factors, includingfalling revenues from blockbuster respiratory drugAdvair, while investors are holding fire to see how well its new suite of drugs will plug the gap. Afterfour negative years, EPS jumped 33% in 2016, and forward growth looks steady. This large, diversified company should remain an income machinefor years to come, so let the dividends roll.
Legal & General Group
Insurance company Legal & General Group (LSE: LGEN) is another big yielder, currently paying income of 5.5%, with cover at 1.4. Fittingly, asa major-scalevendor of trackerfunds its share price tends to follow the stock market up and down, soit hasclimbed almost 20% over the last six months. Its share price has doubled over five years, butinvestors concernedthat stock market growth may have peaked might want to delay their entry point. Although at a forecast valuation of 11.3 times earnings, its hardly overpriced.
Management is bullish, saying last month thatall three of L&Gsdivisions were well positioned to capitalise on significant structural growth opportunities arising from geopolitical, economic and demographic changes. Five years of positive EPS growth are set to continue this year and next, if at a slower rate of 1% and 5%, while the yield is forecast to hit a whopping 6.6%. Like BP and Glaxo, L&G looks like the perfect building block for almost any portfolio.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended BP. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.