Is Legal & General Group Plc A Better Buy Than Aviva plc Or Prudential plc?

Strong results make Legal & General Group Plc (LON:LGEN) an attractive buy, but are Aviva plc (LON:AV) or Prudential plc (LON:PRU) a better choice?

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Legal & General Group (LSE: LGEN) shares rose by 3.5% this morning, after the insurance, pension and fund management group reported an 18% rise in operating profit for the first six months of this year.

The firm’s interim dividend was increased by 19% to 3.45p, while adjusted earnings per share were up 15% to 9.8p. Net cash generation, one of the firm’s favourite metrics, rose by 11% to £629m.

Shifting focus

Legal & General’s gains came despite a 62% drop fall in annuity sales, which fell from £3,518m during the first half of 2014 to just £1,326m.

In light of the change in pension rules, which mean that many retirees are no longer buying annuities, Legal & General is shifting its focus away from annuities.

Despite this, annuity assets rose by 13% to £43.3bn, mainly as a result of a rise in bulk annuities, which are where Legal & General takes responsibility for paying the pensions of members of corporate fixed salary schemes.

Looking ahead, Legal & General intends to increase its focus on investment management. Total assets under management rose to £714.6bn, 12% higher than at the same point last year.

An attractive buy?

There was little to dislike about today’s results. Legal & General appears to be using its scale to build defensive strongholds in the retirement and investment management sectors.

The firm’s valuation certainly doesn’t look excessive. L&G shares now trade on a trailing P/E of 15.5, falling to a 13.8 based on 2015 forecast earnings.

Similarly, L&G’s trailing yield is a generous 4.4%, with this year’s forecast total payout of 13.2p giving a 5% prospective yield.

It may be worth noting that the 20%+ annual rate of dividend growth seen since 2009 is likely to slow to more normal levels from next year, when Legal & General will announce a new dividend policy.

Current broker forecasts suggest that after rising by 17% in the current year, L&G’s dividend will rise by a more modest 8.4% in 2015/16.

Better buys elsewhere?

Legal & General isn’t the only choice if you want to invest in a large insurance and investment firm. Aviva (LSE: AV) and Prudential (LSE: PRU) are both attractive alternatives.

Which looks the better buy today?

Aviva continues to look the cheapest of the bunch, trading on a 2015 forecast P/E of just 10.9, falling to 9.9 in 2016. One reason for this is likely to be that Aviva’s earnings per share are expected to remain flat this year.

In contrast, Legal & General is expected to deliver a 15% rise in earnings per share, while the Pru’s earnings per share are expected to rise by 24%.

Aviva’s lower growth outlook doesn’t prevent the firm looking attractive for income, in my view. The firm’s payout is expected to rise by 15% to 20.9p this year, giving a prospective yield of 4%, rising to 4.7% in 2016.

That’s a lot better than Prudential, where this year’s dividend payment is only expected to rise by 8%, to give a below-average prospective yield of 2.6%.

My view is that all three firms make attractive buys. Prudential’s heavy exposure to the Asian market gives the firm a unique angle, while both Legal & General and Aviva look attractive long-term income buys for UK-focused investors.

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.

Roland Head owns shares in Aviva. 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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