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Lloyds (LSE: LLOY) and Aviva (LSE: AV) shares have a lot to shout about right now. Both have rewarded investors with plenty of share price growth, and generous dividends on top.
This is a tale of two highly impressive FTSE 100 financial stocks – one of which I’m thrilled to say I own, the other I regretfully don’t.
I bought Lloyds three years ago, dazzled by its low price-to-earnings (P/E) ratio of six or seven, and high forecast dividend yield of 5%. It’s done brilliantly. The shares are up 152% over five years. With dividends invested, the total return must be north of 175%.
Two top income and growth stocks
I considered buying Aviva at the same time, but eventually plumped for Legal & General Group, which offered a dazzling 10% yield. In retrospect, I chose the wrong FTSE 100 insurer.
The Aviva share price climbed an impressive 75% over the last five years. With the yield touching 7% at times, the total return must be around 115% with dividends reinvested.
Aviva has slowed lately. Its shares are up just 8% in the last year. Lloyds has maintained its momentum, up 35%. But which looks better value today?
Based on their P/E ratios, there’s only one winner. Aviva looks expensive with a trailing P/E ratio of 27.2. Lloyds P/E is much more modest at 15.9. But that’s more expensive than it was.
In both cases, the forward P/E is a little more amenable. Aviva’s plunges to a modest 14.4, while Lloyds slips to 11.1. Lloyds still looks marginally better value.
What are the dividends like?
Of course there are so many other factors when comparing companies. A key one is the income. As a rule, Aviva pays more, and may appeal more to income-focused investors.
| 2025 yield | 2026 yield (forecast) | 2027 yield (forecast) | |
| Aviva | 5.35% | 5.68% | 6.08% |
| Lloyds | 3.26% | 4.17% | 4.88% |
The boards both have a decent track record of dividend increases. Over the last 10 years, Aviva has increased shareholder payouts at an average annual rate of 6.47%. That rises to 13.5% in the last five.
FTSE 100 racing demons
Lloyds’ average annual dividend hike is 5.49% over the last 10 years, rising to a thunderous 26.5% over the last five. Remember, those 10-year figures include pandemic disruption.
Aviva has substantially increased its general insurance footprint through the recent Direct Line purchase, but that brings integration risk. It should benefit as more people save for retirement, which should give it a huge pool of customers to cross-sell to. But a wider stock market crash could hit assets under management and fee income.
Lloyds is primarily a retail bank but it’s trying to expand into wealth management and insurance. It’s also spending heavily on technology and AI, to drive efficiency gains. If interest rates climb higher, that could hit mortgage demand and drive up bad debts. Alternatively, falling interest rates could squeeze margins.
Aviva has the more diversified growth story, Lloyds is the simpler proposition. But I’m worried that Lloyds is more vulnerable to interest rate movements. Both are worth considering, but Aviva may just have the edge. It’s a close run thing, though.
Should you invest £5,000 in Aviva Plc right now?
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Harvey Jones owns shares in Legal & General and Lloyds.
This story originally appeared on Motley Fool
