I wish I’d bought Aviva shares 3 years ago – should I buy them now?

Three years ago, I was moments away from buying Aviva (LSE: AV) shares. I was populating my SIPP and it was a toss-up between Aviva and rival FTSE 100 insurer and asset manager Legal & General Group (LSE: LGEN).

Both looked good value, with price-to-earnings (P/E) ratios of six or seven. Both had underperformed for years. Both looked primed for a rebound.

Inflation was still raging then. CPI stood at 10.3% in February 2023, not far below its 11.1% peak the previous October. Higher interest rates and the cost-of-living crisis were weighing on the FTSE 100, which stood at 7,878. But investing is cyclical. I felt rates couldnât stay that high forever. When they fell, UK shares, especially high-yield dividend stocks, would look way more attractive than boring old bonds and cash. That was the theory, anyway.

FTSE 100 sector rivals

At the time, investors could get risk-free yields of 5% or more, so many felt there was less need to risk capital by investing in equities. I took a different view. Aviva was yielding 7.5%, while Legal & General yielded as much as 10%, with the potential for capital growth on top when their shares recovered. Faced with that choice, I bought Legal & General, seduced by its stunning income.

Broadly, my theory proved right. Base rates have fallen from 5.25% to 3.75% and looks set to drop further. Bond yields and savings rates have followed. The FTSE 100 now trades around 10,780, up 36% in three years. With dividends, total returns are pushing 50%.

High-yield financials have flown, notably Aviva, which is up almost 50% over three years and 30% in the last 12 months, with all dividends on top. Other dividend-paying FTSE 100 financials in my portfolio, Lloyds Banking Group, M&G and Phoenix Group Holdings have also surged. Sadly, thereâs been one clear laggard: Legal & General. That’s the bit I got wrong.

Its shares are up around 12% over the last year and a meagre 5% over three years. Yes, investors have pocketed plenty of dividend income, but theyâd have got almost as much with Aviva, and enjoyed bags more capital growth.

Legal & General underachieves

I wonât complain too much. Iâm sitting on several big winners and thereâs no finishing line in investing. I plan to hold these stocks for at least the next decade. Legal & General has time to make up lost ground. As I said, investing is cyclical.

Aviva looks pricier after its strong run, with a trailing P/E of 26.7 and a yield trimmed to 5.4%. Legal & Generalâs trailing P/E stands at 92, which looks bizarre but reflects three consecutive double-digit falls in earnings per share (which also explains its weaker share price). The trailing yield remains chunky at 7.9%.

On a forward basis, the picture looks calmer. Aviva trades on an undemanding P/E of 11.9 for 2026, with Legal & General on 11.3. Forward yields of 6.36% and 8.35%, respectively, still look fabulous.

So should I buy Aviva now? It was the better bet three years ago and may still have the edge. It has momentum and has streamlined into a sharper business. If starting from scratch, it would be my first choice. But Iâm sticking with Legal & General, hoping my patience will ultimately be rewarded. Investing is cyclical, they say.

The post I wish Iâd bought Aviva shares 3 years ago â should I buy them now? appeared first on The Motley Fool UK.

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Harvey Jones has positions in Legal & General Group Plc, Lloyds Banking Group Plc, M&g Plc, and Phoenix Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc and M&g Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.