Lloyds vs Aviva: which stock has recovered the most?

Is Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) or Aviva plc (LON:AV) (AV.L) in a stronger position to deliver share price gains?

Aviva plc
Aviva plc

The share price of Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) has risen 101% in the last 5 years. That’s ahead of the Aviva plc (LON:AV) (AV.L) share price, which is up 61% in the same time period.

Both stocks have made encouraging turnarounds from what were difficult positions. In the case of the Lloyds share price, it has overcome significant risks to the business to improve on its financial standing. For instance, it has reduced its efficiency ratio and increased its CET1 ratio.

It has also recommenced dividends, with the company’s shares now yielding 3.9%. In future years, its dividends could rise at a faster pace than CPI inflation in my view, since Lloyds may target a higher payout ratio over the medium term.

Similarly, Aviva is planning on raising its payout ratio from approximately 46% to 50%. This could help to push its dividend yield higher from its present level of 4.4%. In addition, it could also boost the Aviva share price if CPI inflation moves higher.

Aviva has been able to turn around a loss-making performance in the last 5 years by rationalising its business and seeking efficiencies. It has also been shrewd with acquisitions in my view, with the Friends Life purchase having the potential to register synergies and create a more dominant insurance company.

The outlook for the 2 stocks is positive in my opinion. I feel they both have good strategies which could lead to higher EPS and stronger, more sustainable growth. They both have P/Es which I think indicates they are relatively undervalued. Lloyds shares have a P/E of 10, while Aviva’s prospective P/E is just over 10. Therefore, there is little to choose in that respect between the 2 stocks.

In my opinion, Aviva’s more upbeat forecasts for 2017 and 2018 could make it the better buy right now. It is expected to register a rise in EPS in both years, while the Lloyds EPS is forecast to fall by 1% in 2018. Therefore, while I’m bullish about both stocks, I think Aviva could be a better buy than Lloyds.

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