Shares in Legal & General (LSE: LGEN) and Aviva (LSE: AV.) are always popular with UK investors. This is due to the fact that these companies pay out big dividends.
Wondering which shares are looking most attractive today? Let’s compare them and find out.
Comparing the two businesses
These two have fairly similar business models. Both do insurance, investment management and retirement solutions.
Recently, both have been trying to simplify and streamline their businesses to become more efficient. Aviva started this process a few years ago when CEO Amanda Blanc came in and it has seen some good results. Legal & General started more recently when new CEO António Simões arrived, so it’s still early days here.
Overall, I don’t see a clear winner in terms of business model and strategy. However, it’s worth noting that today, Aviva only operates in the UK, Ireland and Canada. So it’s a little less diversified than Legal & General, whose footprint spans the US, Europe and Asia.
Who’s performing better?
In terms of who’s performing better today, it appears to be Aviva. Last year, it generated operating profit growth of 9%. By contrast, Legal & General’s operating profit was flat year on year.
Looking ahead, Aviva’s targeting operating profit of £2bn by 2026 versus £1,467m in 2023. That represents annualised growth of about 11%. However, Legal & General’s only targeting 6-9% core operating earnings per share between 2024 and 2027.
Which share is the cheapest?
This year, Legal & General – which currently has a share price of 234p – is expected to generate earnings per share of 22.2p. That puts its P/E ratio at roughly 10.5.
Aviva meanwhile, is expected to generate earnings per share of 45.3p and its share price is 473p. So its P/E ratio is about 10.4.
That makes Aviva the cheaper stock, but not by a significant amount. I wouldn’t make a decision based on this small valuation differential. Ultimately, they’re both relatively inexpensive today.
Who has the highest dividend yield?
Of course, a major factor with these stocks is the dividend yield. So which stock is superior here?
Well, for 2024, Legal & General’s projected to pay out 21.3p per share. That puts its yield at 9.1%. Meanwhile, Aviva’s forecast to pay out 34.7p per share for 2024. Therefore, its yield is 7.3%.
So Legal & General has the highest yield today. It should be noted however, that Aviva’s payout is likely to grow faster than Legal & General’s in the years ahead. So the gap could narrow.
And it’s worth pointing out that neither stock has a particularly high dividend coverage ratio (the ratio of earnings to dividends). So investors shouldn’t assume that dividends will continue at current levels.
Risks
Finally, both companies face similar risks. Financial market volatility is one to consider. A dip in global stock markets, for example, could impact earnings from investment management. Lower demand for institutional retirement solutions is another.
The winner?
Putting all this together, it’s not easy to pick a winner. Aviva appears to be performing better. But Legal & General has a higher dividend yield.
Given the higher yield, I’d probably go for L&G if I was looking to buy one of these stocks. However, if my goal was income, I might even invest in both.
