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Why It’s Time To Sell Aviva plc And Buy Legal & General Group Plc

avivaThere’s no denying that Aviva (LSE: AV) (NYSE: AV.US) has put in an impressive performance so far this year. Indeed, the company’s shares have outperformed the FTSE 100 by just over 16% year to date, excluding dividends making the company one of the index’s top performers.

However, now looks as if Aviva’s shares are set for a fall. Legal & General (LSE: LGEN) could be a better bet for investors. 

Slow and steady

Like Aviva, Legal & General has also outperformed the FTSE 100 this year, although only by 5% excluding dividends. Nevertheless, the company is set for slow and steady growth over the next few years as the savings provider befits from an ageing population and increasing demand for investment management. 

Specifically, City analysts are expecting Legal & General’s earnings to expand at a low double-digit rate during the next two years. Current forecasts predict earnings per share of 16.7p for full-year 2014 and 18.2p for full-year 2015.

These estimates indicate that the company is trading at an undemanding forward P/E of 13.6. What’s more, the City is expecting Legal & General’s dividend yield to hit 4.9% for full-year 2014, followed by 5.4% for full-year 2015. These payouts will be covered one-and-a-half times by earnings per share, according to current forecasts. 

The City has a dividend yield of 3.2% pencilled in for Aviva during 2014, rising to 3.7% during 2015. 

Historic growth 

But where Legal & General really shines is the company’s historic earnings performance. For example, from 2009 to 2014, the company’s earnings per share will have expanded at a compounded annual rate of 2.5%, which is not the fastest rate of growth in the world but it is slow and steady.

Meanwhile, Aviva’s earnings per share have grown at a compounded annual growth rate of 1.2% over the period. However, the company reported a loss during 2012 and a 76% drop in earnings between 2009 and 2011. So, it seems as if Legal & General is the stock of choice if you want slow and steady earnings growth. 

Firm outlook 

Having said all of the above, both Aviva and Legal & General are set to benefit from ageing populations and rising levels of wealth over the next few decades.

Moreover, while the changes to pension rules made earlier this year may have impacted annuity sales, Aviva and Legal & General both offer investment management services. These services should report a rise in assets under management and probability as pensioners take control of their savings next year. 

Long-term investing

So, based on Legal & General’s historic earnings growth and hefty dividend yield, the company looks to be a better investment than Aviva at present levels. Still, the two companies are set for steady long-term growth due to their position within the pension industry.

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Rupert Hargreaves has no position in any shares mentioned. 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.