Shares in insurance giant Aviva (AV.) fell by the best part of 13% to 314p today, after it said it would cut its total dividend by more than a quarter to 19p to help fund a turnaround at the company.
The life insurance industry has been blighted by low investment returns in recent years as well as the introduction of the Retail Distribution Review (RDR), which forbids companies from paying financial advisers to recommend their products. However, strong management has led some to produce a solid performance. One such company is Standard Life (SL.), which is increasing its final dividend by 6.5% to 9.8p, taking the total for the year up 6.5% to 14.7p. Buoyed by its strong balance sheet and improving cash generation, Standard Life also announced a special dividend of 12.8p per share. This was the result of a strong performance in its UK business, which led to an ahead of expectations 65% increase in operating profit to £900 million for 2012.
Meanwhile, Aviva’s problems continue. The insurer is paring its final dividend back by 44%, from 16p to 9p, to reduce the group’s £671 million debt pile and put the FTSE 100 player on a firmer financial footing. Ensuring the dividend was covered by earnings and cash-flow was also a factor.
Aviva lost some £3 million post tax last year as new chief executive Mark Wilson attempted to turn the business around. At the heart of his plan was the disposal of several of its assets, which helped cause the company’s huge losses. This included a £876 million write down on the sale of its US business, which was sold for around half its book value at £1.2 billion.
Edison Investment Research analyst Martyn King believes Aviva’s interim dividend will drop by a similar proportion in 2013. ‘This [44% dividend cut] implies a starting dividend for 2013 of c15p or a yield on last night’s closing price of 4.2% rather than the 7.2% had the dividend been unchanged.’
Standard Life’s news followed Legal & General (LGEN) raising its dividend by 20% to 7.65p yesterday after reporting a 9% increase in taxable profits to £1.2 billion. In February St James’s Place (STP) lifted its dividend by a third. In the non-life insurance sector RSA (RSA) cut its dividend by the same proportion.