Introduction
Aviva and Legal & General are two of the biggest players in the UK insurance industry. Both have long histories with strong presence and reputation in the industry. Over the past 100 years they have grown and evolved to become major multinational corporations. In this blog I’ll provide a quick overview of both companies and compare their financial performance to see who I would suggest investing in.
Company Background and Operations
Aviva (Ticker: AV) has a rich history that dates back to the early 1696, and over the years, it has grown to become one of the largest and most respected insurance providers in the world. The company has operations in over 16 countries and serves more than 33 million customers worldwide. Aviva's k
ey strengths include its financial stability, customer-centric approach, and innovative products and services. The company was formerly known as CGNU plc and changed its name to Aviva plc in July 2002. Aviva plc was founded in 1696 and is headquartered in London, the United Kingdom.
Legal and General (Ticket: LGEN), meanwhile, has been providing financial services to customers for over 180 years. The company has a strong reputation for its expertise in pensions and retirement plann
ing, and it also offers a range of other financial products, including life insurance, investments, and gener
al insurance. Legal and General is a market leader in the UK, with a strong presence in Europe and the Americas.
Financial Analysis
Both companies have delivered mixed performances over recent years. AV’s market cap is £10.57bn, with 2022 operating profit up 35% to £2.213bn, while LGEN's market cap £13.31bn, with operating profit up 12% to £2.5bn.
AV has a Dividend Yield 8.03% which is beaten by LGEN coming in at 8.69%. The payout ratios are great with AV coming in at 91% and LGEN 51%. LGEN is close to my 50% target while AV’s could suggest that the payment of dividend at current rate may be unsustainable. This is why high yield could be a dividend trap and we can’t always rely on a dividend continuing to be paid. 2008 -09 is a prime example for this type of company. Both companies are biannual dividend payers. AV pays in May and September while LGEN pays in June and September.
AV has a dividend growth streak of 4 years, a 5-year Dividend Growth Rate (DGR) of 2.5%, which is significantly behind LGEN which has a strong history of 1 years of growth and 5 year DGR of 4.76%.
AV has faired better over the one-year time-frame whereas LGEN has a 5-year Compound Annual Growth Rate of -3.25% compared to BP which shows a CAGR of -8.36%.
The final financial metrics I review are Debt to Equity, is the stock undervalued and forecast earnings growth. AV wins with a lower debt to equity with a figure of 55.38% and LGEN has a whopping 619.54%. AV is looking at being undervalued at approx. 53.7% and LGEN is 65.8% undervalued.
While both companies are being forecast to increase earnings growth AV estimated to be 44.3% while LGEN on 5%.
Risks for AV and LGEN
When considering investing in Aviva or Legal and General, it is important to consider the risks associated with each company. One of the main risks facing Aviva is its exposure to the global economy. As a multinational company, Aviva is exposed to fluctuations in global markets, which can have a significant impact on its financial performance.
Legal and General, on the other hand, faces risks associated with the UK economy. As a UK-based company, Legal and General is heavily exposed to the performance of the UK economy, which can be impacted by a variety of factors such as Brexit, government policy, and changes in interest rates.
Both companies also face risks associated with the insurance industry, such as changes in regulations, competition from other insurers, and changes in consumer behavior. It is important for investors to carefully consider these risks before making any investment decisions.
Legal & General Group plc Announces Appointment of António Simões as Group CEO, Effective 1 January 2024
Conclusion
In summary, both Aviva and Legal and General are highly respected insurance companies in the UK, with a long history of providing innovative products and services to their customers. Their financial stability, expertise, and customer-centric approach make them a popular choice for those seeking insurance and financial services and for investors their c 8% yield make them attractive propositions.
I hold stock oin both companies, but am more weighted to LGEN, what about you. I talk about LGEN in this video alongside a few other 8% + dividend yielding companies – go and check it out to see if any met you needs?
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