Aviva plc Vs Standard Chartered PLC Vs Lancashire Holdings Limited: Which Finance Stock Is The Best Buy?

If you could only buy one of these 3 finance stocks, which should it be? Aviva plc (LON: AV), Standard Chartered PLC (LON: STAN) or Lancashire Holdings Limited (LON: LRE)

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Within the financial services sector, there are a multitude of high quality stocks trading at very appealing prices. As such, it can be challenging to narrow it down to a small number to add to your portfolio, with high yields, growing profits and super-low valuations being par for the course among the insurance and banking sectors at the present time.

For example, insurer Lancashire Holdings (LSE: LRE) has one of the highest yields in the FTSE 350. It currently yields a whopping 9.9%, which should appeal to almost all income investors. And, while dividends are due to be lower next year than they are in the current year, Lancashire Holdings is still expected to yield 9.2% next year, which means that in the course of two years it could provide its investors with an income return of 19%.

Of course, the reason for such a high yield is that Lancashire Holdings is in the midst of paying special dividends. And, while special dividends are very welcome for investors, there is no guarantee that they will continue. In fact, it could be the case that Lancashire Holdings requires capital in future, potentially for a growth opportunity, and asks for a proportion of the special dividends to be returned in the form of a capital raising. So, while a 9.9% yield sounds mightily impressive, it may not last over the medium term.

Clearly, the yield on offer at Aviva (LSE: AV) (NYSE: AV.US) is also hugely appealing. It currently yields 5% using next year’s forecast dividend per share figure and, while Lancashire Holdings is expected to post a fall in net profit of 28% this year followed by 4% next year, Aviva’s bottom line is forecast to rise by 11% in 2016. As such, its price to earnings (P/E) ratio of 10.7 holds more appeal than Lancashire Holdings’ P/E ratio of 10.9, with there being more chance of an upward rerating to Aviva’s valuation moving forward, owing to the positive catalyst of earnings growth.

However, where Aviva carries risk is with regard to its takeover of Friends Life. While in the long run this is likely to create a more efficient and hugely profitable entity, history shows that mega-mergers can come with teething problems, as well as a number of challenges that are not foreseen until the deal is signed and sealed.

As such, Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) could prove to be an even better buy than Aviva. Certainly, it is also experiencing a transitional period as it adjusts to a new, slimmed down management team and, with the Chinese economy seeing a slowdown, its shares may come under a degree of pressure in the short run. However, with its bottom line set to rise by 13% next year and its shares trading on a P/E ratio of 11.2, it appears to offer the most scope for a share price rise. In addition, Standard Chartered’s dividend yield of 4.8% is also hugely appealing, too.

So, while Aviva and Lancashire Holdings are great stocks that are worth buying, Standard Chartered seems to offer the most potent mix of growth, income and value.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Peter Stephens owns shares of Aviva and Standard Chartered. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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