Legal & General vs Aviva: which is the best high-yield stock today?

Edward Sheldon analyses Legal & General and Aviva shares from an income investing perspective. Is one high-yield stock superior to the other?

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Legal & General (LSE: LGEN) and Aviva (LSE: AV.) are two popular high-yield stocks. In recent years, both have been absolute cash cows.

Is one insurance stock a better income investment than the other? Let’s discuss.

Who has the highest yield?

A good place to start the analysis is the yield on offer.

Both stocks have high yields at present. But it’s Legal & General that has the highest.

For 2023, it’s expected to pay out 20.3p in dividends per share. That puts its yield at about 9.2%.

As for Aviva, analysts expect it to reward investors with a payout of 32.3p per share. At today’s share price, that translates to a yield of around 8%.

Whose dividend is safest?

Now, experienced investors know that when investing for income, it’s important to look at the dividend coverage ratio.

This is the ratio of earnings per share to dividends per share and it provides some insight into how secure a company’s dividend is.

Generally speaking, it’s good to see a ratio of two or higher as this means that earnings could halve and they would still cover the dividend payout.

For 2023, both Legal & General and Aviva have projected dividend coverage ratios of around 1.1.

So, both companies come up a little short on this front.

This low level of dividend coverage is a risk to be aware of with these stocks.

Which insurer has the best dividend track record?

Another thing that’s worth examining when analysing income stocks is the dividend payout track record.

I like to see a track record of consistent growth in the payout. Conversely, I don’t like to see big cuts to the distribution.

Now, Legal & General wins here. With the exception of 2021 (when it held its payout flat), it has raised its payout every year over the last decade.

Turning to Aviva, it slashed its payout substantially in 2019.

Which company is performing best right now?

As for which company is performing better right now, it’s probably Aviva.

For the first half of 2023, it delivered an 8% increase in operating profit. As a result, it raised its interim dividend by 8%.

By contrast, Legal & General’s H1 operating profit was down 2% year on year. It still managed to raise its H1 dividend payout by 5%, however.

Who has the lowest valuation?

Finally, it’s worth comparing the two companies’ valuations.

Currently, Legal & General shares trade on a price-to-earnings (P/E) ratio of about 10.

Meanwhile, Aviva shares sport a P/E ratio of about 11.1.

So, Legal & General is a slightly cheaper stock.

My pick of the two

Putting this all together, there’s not a lot between them. Both stocks have their pros and cons.

For example, while Legal & General has the higher yield, Aviva’s dividend payout appears to be growing faster.

If I had to pick one insurer to invest in, though, I’d go with Legal & General.

The main reason I’d pick this stock is that I like to invest in companies that have excellent long-term dividend growth track records.

And Legal & General has that, having not cut its payout for over a decade.

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 assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any of the 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.

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